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Rated among Top 100 CA in Mumbai - Best CA Mumbai by multiple websites such as Justdial, Webindia, Topcafirms.com, etc. In India, CA (Chartered Accountants) are regarded as the maestros of Accounts and Taxes, just as Sachin Tendulkar is for Cricket! This is because it is the most comprehensive course that allows gaining extensive knowledge and three long years of practical experience and exposure in planning income and investment portfolios, calculating taxes and filing ITRs under the mentor-ship of an already experienced CA (Chartered Accountant). In fact, with the advent of comprehensive online tools in the COVID era, there are a lot of applications and websites that provide both automated and manual support to plan and calculate taxes. But there are still a lot of factors that need to be considered before settling on a CA (Chartered Accountant) to plan the tax liability on one’s hard earned money. Let’s have a look at some of the factors that are noteworthy before finalizing on a CA (Chartered Accountant) / Tax Advisor: 1. Finding out the entity’s status: This is an important step since this requires assessment of the status of the taxpayer. This is because there are varied complexities in every type of entity which needs to be addressed accordingly by a relevant tax expert. See the following scenarios: Individual Status: If the taxpayer is an individual, he/she can refer to an CA (Chartered Accountant) who primarily has expertise in Direct Taxation. Corporate Status: If the taxpayer is a corporate entity, the Directors of the company might want to refer to a more seasoned CA (Chartered Accountant) / Tax Advisor who primarily has expertise in both Direct Taxation and Indirect Taxation, in addition to Corporate Tax, as well as Provident Fund, Employee State Insurance advisors, etc. Others: If the taxpayer is a Partnership Firm, LLP, etc., the partners or members might have to refer to a blend of above. 2. Assessing whether the Income and Tax Structure of the entity is complex enough to hire a CA as the fee charged may or may not be justified to the taxpayer. Following the above scenarios, an individual might just as for guidance from an CA (Chartered Accountant) in the family or friends in case the assess able income is not too big, whereas a firm or a company might need a proper team of expert advisors to mitigate the tax burden at a large level. 3. Not every CA (Chartered Accountant) is specialized in the field of taxation. Taxation is an extensive field with various branches. Finding someone experienced and specialized in the branch that a person needs help with is quite important. This could be understood in terms of the large different types of tax advisors that exists, viz., Income Tax, Gift Tax, Wealth Tax, Capital Gains Tax, Corporate Tax, GST, Customs & Excise, etc. 4. It is necessary to ensure that the CA (Chartered Accountant) is always available and updated in terms of the recent Income Tax Notifications or the ever so changing Income tax Return Forms to address any immediate changes in the taxpayer’s income or status. For example, a Capital gain somewhere in the middle of the year could change the calculations and planning of taxes and give rise to a requirement to pay Advance Tax. 5. A few common factors such as the past experience and area of practice of the CA (Chartered Accountant), the clients or industries they have served, the reasonability of the fee charged with respect to the general market fee, an example of a fruitful advise they gave to some client which was a turnaround for the client’s tax burden. Choosing a CA (Chartered Accountant) carefully is important because the person entrusts all the income details and their sources to them. So, the focus should be on to retain the same person for as long as they can be as that would ensure no scattering of personal information to a lot many people again and again. This also helps in maintaining a close relationship to build trust and faith in each other. So, keeping these small things in mind will help a taxpayer go a long way in finding a perfect advisor, consultant and a partner!

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FAQs on Cryptocurreny and taxation

With cryptocurrency prices soaring over the last few years, many Indians have raked in instant wealth. But paying taxes on this income has turned into a nightmare.

This is so because under Indian tax laws, the nature of virtual currency investments is unclear. What is certain is there’s NO ESCAPING TAXES.

In December 2017, the income tax (I-T) department surveyed several cryptocurrency exchanges in the country to understand their modus operandi and user base. Since then, notices have reportedly been served to about 500,000 investors for non-payment of taxes. In the past few months, the bourses, too, have appeared on the Reserve Bank of India’ and the government’s radar.

So without further delay, below are some FAQs on Cryptocurreny and it's Taxation.

1 - Question on Classification of cryptocurrencies trading

Whether cryptocurrencies can be classified as either capital gains or business income?

Answer:

In view of Section 2(14) of the Income-tax Act 1961, a capital asset means a property of any kind held by a person, whether or not connected with his business or profession. The term 'property', though has no statutory meaning, yet it signifies every possible interest which a person can acquire, hold or enjoy.

Therefore, bitcoin could be deemed as capital assets if they are purchased for the purpose of investments by taxpayers. Any gain arising on transfer of a cryptocurrencies shall be taxable as capital gains. However, if the transactions are substantial and frequent, it could be held that the taxpayer is trading in cryptocurrencies. In this case, the income from sale of cryptocurrencies would be taxable as business income,

However, as far as India is concerned, you would not find any business dealing in cryptocurrencies. You will find brokers and investors, who deal regularly in stocks and commodities, but when it comes to cryptocurrencies, you would never find any broker who is holding a virtual currency as a stock in trade Wadhwa added.

Therefore, the gains made from investing in bitcoins or virtual currencies are taxable as capital gains, and to calculate capital gains, one needs to first calculate the period of holding. If investors hold cryptocurrencies for 36 months or more, the gains would be taxable as long-term capital gains (LTCG), and less than 36 months, it would be short-term capital gains (STCG).

Short-term capital gains are taxable as per the slab rates applicable to a taxpayer. And long-term capital gains are taxed at the flat rate of 20% with the benefit of indexation.

When it comes to filing ITR, individuals having taxable income more than ₹50 lakh have to mandatorily fill in Schedule AL in ITR forms, which contains information related to investments in mutual funds and securities, including cryptocurrencies.

Moreover, if a company or a partnership firm has made an investment out of their business funds into a cryptocurrency, then it is mandatory for them to show it in their balance sheet as they have to follow the accounting standards.

2 - Question from Client on Crypto arbitrage using debit card

Hi Sir, I am purchasing bitcoin in foreign exchange through debit card and selling them in indian exchange and repeating the cycle . is there any legal complications in doing so. Kindly let me know.

Answer:

There is no illegality as of now for trading in cryptocurrency in India. However, arbitrage arises when you are buying/selling cryptocurrency abroad and selling/buying them in India to get the benefit of changes in the rates. It implies that there may be usage of foreign exchange.

Since you will be selling in India and you are a resident of India, the profits that you earn in India will be taxable in India. You will pay taxes only on your share of profits. Further, currently there is no clarity on GST on bitcoin transactions. 

Banking compliances would be there for foreign payments, such as Form 15CA.

 

3 - Question from Client - Is it legal to buy cryptocurrency in USA and sell in India?

Hello,
As there are some arbitrage in cryptocurrency exchanges in USA and INDIA , is it legal to send USD to friend in USA and let her  buy bitcoin over there and tell her to send those bitcoin to your wallet and later on sell these bitcoins in India?
Scenario is ,
Lets say I transfer 100$ to her US bank account. She buys bitcoin in US crypto exchange and transfer those bitcoins to my wallet. I encash those bitcoins and lets say I get  INR equivalent to 105 $ . Then
1. Do I have to pay tax on 105$ or the 5$ earned?
2. And how I can link my  100$ transfer to my friend and 105$ gained by selling bitcoin?
3. If above scenario is possible then what are the documents I will need to support it ?

Answer:

1) You will pay tax on $5 and not on the entire $105. There are no clearly defined laws in India regulating the sale and purchase of bitcoins. So there is nothing legal neither illegal in trading in cryptocurrency / bitcoins as of now.

2) You will have get the transaction details from the exchange and have to calculate capital gains basis that.

3) As mentioned in Point 2. You need to have the transaction details from the exchange and have to calculate capital gains basis that.

 

4 - Question on Accounting Method and Cryptocurrencies tax treatment

1) Should I consider LIFO or FIFO for tax calculations for cryptocurrencies capital gains?
2) cryptocurrencies or shares sold but the Fiat was not transferred to bank account and was still in Demat account / crypto exchange, and within next few days more cryptocurrencies / shares were purchased using that very same Fiat(capital+profit) within same financial year, will the capital gain tax be paid on it or it is to be paid when the Fiat is transferred to bank account in future?

Answer:

1. It should be FIFO method.

2. Capital gain is applicable on sale of cryptocurrencies. It is nothing to do with bank account transfer.

5 - Question on setoff of capital losses against capital gains

1. Is it possible to adjust short term capital gains with short term capital losses occurred in the same Financial year, if yes   is there a provision to carry forward the adjustment.
2. If another cryptocurrency/asset is purchased against some other cryptocurrency/asset will that also be considered as sale of the previous asset?

Answer:

1) Yes, you can adjust short term capital gain with short term capital loss in the same year. You can also carry forward the remaining loss to subsequent years.

2) Yes, Exchange of cryptos will be termed as sale. Any exchange to a stable coin or to any other coin will ALSO be treated as sales.

 

6 - Question on transaction location

If the exchange of cryptocurrencies/assets takes place outside India, will it come under Indian tax law?

Answer:

If you are resident of india your global income is taxable in india as per secton 9 of the income tax act 1961.

 

Please schedule a consultation in case you need more clarity on any of the above topics


Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is Mumbai's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA

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