Indian crypto investors have been waiting for the government’s take on crypto taxation for a long time. Finally, on April 1, 2022, the Indian government in its Union Budget 2022 laid out maiden laws concerning crypto assets. The highlighting feature of the new tax policy was that all capital gains generated from digital assets would be subject to a 30 per cent tax and an additional 1 per cent tax deducted at source (TDS) on transactions above Rs 10,000.
The introduction of this tax policy and the ongoing global geo-political crisis have resulted in a declining spiral of crypto transactions in India. As per findings revealed by a trader sentiment survey, 83 per cent of crypto traders believe that the recent tax implementation by the Indian government dissuaded their trading frequency. Additionally, about 24 per cent of survey respondents contemplated shifting their trading activities to foreign exchanges, owing to the harsh crypto taxation policy.
Despite the recent trends, Indian crypto traders are still hopeful about the future of crypto assets. This is evident as India is still the fastest-growing cryptocurrency market in the world, with over 90 million active crypto users as of March 2022. Since virtual digital assets (VDAs) are included in the tax regime and are becoming quite popular amongst the masses, chartered accountants (CAs), and other accounting services are in great demand, bestowing additional professional responsibilities.
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Cryptocurrency in India is a relatively new concept that requires precise taxation guidelines for users to avoid consequences and meet tax obligations.
The influence of crypto taxation on the industry
Understanding and calculating crypto taxes for income tax returns (ITR) is one of the biggest challenges for accounting personnel, as some crypto gains and losses are considered capital gains and losses.
In contrast, others are considered as business income and expenditures. Despite the government laying out regulations governing crypto taxation, there still needs to be accurate guidance that fits the current reporting framework.
CAs and industry personnel are overburdened with the challenges of learning crypto laws and staying updated with a rapidly growing industry, with online data available to the authorities.
Apart from widespread ambiguity and concerns over crypto assets, the government is yet to grant legal status to VDAs like NFTs and cryptocurrencies, impacting the industry’s transparency, accountability, and stability in the long run.
Even before the Budget 2022 notification, investors that made crypto investments in previous years filed tax returns based on interpretation. Due to this, many investors hugely undervalued or overvalued their crypto gains and losses, leading to accounting discrepancies and incorrect computation of taxes.
In order to deliver stress-free and robust crypto tax services to crypto users, accounting personnel must solve tax computation challenges by tracking crypto transactions, ensuring the cost of each VDA purchase, ensuring currency conversion rates, and implementing proper tax treatment laid down by the Income Tax Act.
Modern, effective accounting platforms to the rescue
Crypto taxation platforms combine investor portfolios and all crypto transactions on a centralised platform, allowing users to access all the information they need. These platforms offer financial and taxation insights to crypto users by streamlining the tax computation process.
Seamless and transparent crypto accounting will eliminate market volatility and increase investor confidence, allowing conservative investors to enter the market and existing investors to invest more.
The crypto market is highly dynamic. It can take time to stay updated with the latest market trends and government regulations. A robust crypto taxation platform offers advanced reconciliation services, handling all complex accounting needs, and preventing penal repercussions.
Smooth and errorless crypto tax computation enables accounting teams to provide clients with a stable investment environment by meeting all their needs and requirements. Crypto tax transparency helps users prepare for the tax season and encourages them to manage their portfolios and pursue investment goals.
The Indian crypto industry is still in its infancy, with much room for growth and evolution. However, certain issues need to be addressed by the government to help regulate this new market. Crypto taxation laws are cumbersome and have increased the role of CAs in filing and computing tax returns.
But the good news is that crypto taxation platforms can help them sync user portfolios, compute taxes, and offer reliable tax insights on their crypto investments.
(The author is the founder and CEO of KoinX, a platform that helps calculate and provide crypto tax reports.)
Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.