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Cryptocurrency CA (27)

Crypto investors and traders have been plagued by regulatory uncertainty in India. As the Indian Government authorities continue to struggle in fundamentally differentiating. Bitcoin from Blockchain, the subcontinent's economy is positioned to lose out on, what is possibly, the century's biggest revolution. Having added to the fear, uncertainty and doubt, is the ring-fencing notification issued by the RBI, restricting banking access to Indian crypto exchanges. Despite the speed-bump, believers of the Blockchain technology remain undeterred, thanks to which trading volumes have picked up on the Indian exchanges. Although there isn’t any clarity in tax legislation, the Indian Revenue Authorities are breathing down the necks of crypto traders. It is, therefore, imperative to accurately compute and report any income from cryptocurrencies. Consult a top-notch Cryptocurrency CA to get clarity on myriad of accounting and tax issues arising from Cryptocurrency 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

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

CA in Mumbai | Chartered Accountant in Mumbai | Tax Consultant | Tax Advisor | Borivali | Kandivali | Malad

Common Cryptocurrency Scams and How to Avoid Them

As you become involved in the new digital monetary mechanisms known as cryptocurrency, it doesn't take long to recognize there's risk involved in these transactions. And we're not talking about the volatility of the market. Scams are everywhere online, and cryptocurrency exchanges are no different.

Cryptocurrency Scams

Confused about cryptocurrencies, like bitcoin and Ethereum? You’re not alone. Before you use or invest in cryptocurrency, know what makes it different from cash and other payment methods, and how to spot cryptocurrency scams or detect cryptocurrency accounts that may be compromised.

What To Know About Cryptocurrency

What is cryptocurrency?

Cryptocurrency is a type of digital currency that generally only exists electronically. There is no physical coin or bill unless you use a service that allows you to cash in cryptocurrency for a physical token. You usually exchange cryptocurrency with someone online, with your phone or computer, without using an intermediary like a bank. Bitcoin and Ether are well-known cryptocurrencies, but there are many different cryptocurrency brands, and new ones are continuously being created.

CA India | Chartered Accountant India | Cryptocurrency Scams | Bitcoin Fraud | Withdraw Money | USDT Arbitrage

How do people use cryptocurrency?

People use cryptocurrency for quick payments, to avoid transaction fees that regular banks charge, or because it offers some anonymity. Others hold cryptocurrency as an investment, hoping the value goes up.

How do you get cryptocurrency?

You can buy cryptocurrency through an online exchange platform. Some people earn cryptocurrency through a complex process called “mining,” which requires advanced computer equipment to solve highly complicated math puzzles.

Where and how do you store cryptocurrency?

Cryptocurrency is stored in a digital wallet, which can be online, on your computer, or on an external hard drive. But if something unexpected happens — your online exchange platform goes out of business, you send cryptocurrency to the wrong person, you lose the password to your digital wallet, or your digital wallet is stolen or compromised — you’re likely to find that no one can step in to help you recover your funds. And, because you typically transfer cryptocurrency directly without an intermediary like a bank, there is often no one to turn to if you encounter a problem.

How is cryptocurrency different from Traditional Currency?

There are important differences between cryptocurrency and traditional currency.

  • Cryptocurrency accounts are not backed by a government. Cryptocurrency accounts are not insured by a government like U.S. dollars deposited into a bank account. If you store cryptocurrency with a third-party company, and the company goes out of business or is hacked, the government has no obligation to step in and help get your money back.
  • Cryptocurrency values change constantly. The value of a cryptocurrency can vary rapidly, even changing by the hour. It depends on many factors, including supply and demand. An investment that’s worth thousands of dollars today might be worth only hundreds tomorrow. And, if the value goes down, there’s no guarantee it will go up again.

Paying With Cryptocurrency

If you’re thinking about paying with cryptocurrency, know that it’s different from paying with a credit card or other traditional payment methods.

  • Cryptocurrency payments do not come with legal protections. Credit cards and debit cards have legal protections if something goes wrong. For example, if you need to dispute a purchase, your credit card company has a process to help you get your money back. Cryptocurrencies typically do not.
  • Cryptocurrency payments typically are not reversible. Once you pay with cryptocurrency, you can usually only get your money back if the person you paid sends it back. Before you buy something with cryptocurrency, know the seller’s reputation, where the seller is located, and how to contact someone if there is a problem. Confirm these details by doing some research before you pay.

     

  • Some information about your transactions will likely be public. People talk about cryptocurrency transactions as anonymous. But the truth is not that simple. Some cryptocurrencies record some transaction details on a public ledger, called a “blockchain.” That’s a public list of every cryptocurrency transaction — both the payment and receipt sides. Depending on the cryptocurrency, the information added to the blockchain can include details like the transaction amount and the sender’s and recipient’s wallet addresses. A wallet address is a long string of numbers and letters linked to your digital wallet. Even though you can use a fake name to register your digital wallet, it’s possible to use transaction and wallet information to identify the people involved in a specific transaction. And when you buy something from a seller who collects other information about you, like a shipping address, that information can be used to identify you later on.

How To Avoid Cryptocurrency Scams

Scammers are always finding new ways to steal your money using cryptocurrency. One sure sign of a scam is anyone who says you have to pay by cryptocurrency. In fact, anyone who tells you to pay by wire transfer, gift card, or cryptocurrency is a scammer. Of course, if you pay, there’s almost no way to get that money back. Which is what the scammers are counting on. Here are some cryptocurrency scams to watch out for.

Investment and business opportunity scams

  • Some companies promise that you can earn lots of money in a short time and achieve financial freedom.
  • Some scammers tell you to pay in cryptocurrency for the right to recruit others into a program. If you do, they say, you’ll get recruitment rewards paid in cryptocurrency. The more cryptocurrency you pay, the more money they promise you’ll make. But these are all fake promises, and false guarantees.
  • Some scammers start with unsolicited offers from supposed “investment managers.” These scammers say they can help you grow your money if you give them the cryptocurrency you’ve bought. But once you log in to the “investment account” they opened, you’ll find that you can’t withdraw your money unless you pay fees.
  • Some scammers send unsolicited job offers to help recruit cryptocurrency investors, sell cryptocurrency, mine cryptocurrency, or help with converting cash to bitcoin.
  • Some scammers list scam jobs on job websites. They’ll promise you a job (for a fee), but end up taking your money or personal information.

Look for claims like these to help you spot the companies and people to avoid:

  • Scammers guarantee that you’ll make money. If they promise you’ll make a profit, that’s a scam. Even if there’s a celebrity endorsement or testimonials. (Those are easily faked.)
  • Scammers promise big payouts with guaranteed returns. Nobody can guarantee a set return, say, double your money. Much less in a short time.
  • Scammers promise free money. They’ll promise it in cash or cryptocurrency, but free money promises are always fake.
  • Scammers make big claims without details or explanations. Smart business people want to understand how their investment works, and where their money is going. And good investment advisors want to share that information.

Before you invest, check it out. Research online for the name of the company and the cryptocurrency name, plus words like “review,” “scam,” or “complaint.” See what others are saying. And read more about other Cryptocurrency investment scams.

Blackmail emails

Scammers will often send emails that say they have embarrassing or compromising photos, videos, or personal information about you. Then, they threaten to make it public unless you pay them in cryptocurrency. Don’t do it. This is blackmail and a criminal extortion attempt. Report it to the Police immediately.

Social media scams

If you read a tweet, text, email, or get a message on social media that tells you to send cryptocurrency, it’s a scam. That’s true even if the message came from someone you know, or was posted by a celebrity you follow. Their social media accounts might have been hacked. Report the scam immediately to the social media platform, and then inform the police about it.

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

CA India | Chartered Accountant India | Cryptocurrency Scams | Bitcoin Fraud | Withdraw Money | USDT Arbitrage