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Things To Know About Taxes for Cryptocurrency

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Uncertainty Regarding Cryptocurrency Taxes

Cryptocurrencies are not comparable to other assets in terms of their utility or how they are acquired. As a result, it has led to much confusion over how tax should be applied to the proceeds of various crypto transactions.

Let’s have a look at all the potential outcomes. First, it’s crucial to remember that, despite the lack of clarity in the regulations, anyone making money from trading or using cryptocurrencies will be subject to taxes. Binocs makes it simple to keep tabs on all of your Forked Cryptocurrencies and determine any tax consequences that may arise as a result of their receipt or sale. Based on this, how do I file taxes for cryptocurrency?

Case 1: Mining

Cryptocurrencies that are mined are considered to be self-generated assets. When it comes to monetary costs, assets that are “self-generated” do not require any outlay on the part of the assessors to acquire or create them. Additional currency sales will result in capital gains taxation.

Furthermore, Section 55 of the Income Tax Act of 1961, which defines the cost of acquisition of self-generated assets, does not apply to cryptocurrency. Gains on investment cannot be taxed unless the original investment amount is known. Therefore, cryptocurrency mining will not be subject to the long-term capital gains tax.

Case 2: Cryptocurrency held as an investment and traded for fiat currency

Short-term capital gains are incurred when cryptocurrency is sold for fiat currency after being held for less than three years (STCG). Gains on investments held for a shorter period are taxed at the regular rate paid by an individual. In contrast, long-term capital gains tax rates apply to cryptocurrency investments held for over three years (LTCG). The rate of taxation on long-term capital gains is a flat 20%.

Case 3: Cryptocurrency kept as a stock-in-trade and traded for fiat cash

The sale of your cryptocurrency holdings will be considered business revenue if it results in a profit. Now, stock in trade is any item, tool, or supply essential to running a firm. Those who engage in cryptocurrency trading may report it as business income on their federal income tax return. When this happens, crypto-currency earnings will be counted alongside traditional business earnings. As a result, such gains would be taxable at the recipient’s marginal rate.

As was previously noted, gains made from bitcoin will be subject to either short-term or long-term capital gains taxation. Nonetheless, the argument on the head under which they can be declared persists due to the ambiguity surrounding cryptocurrencies and the fact that the Indian government does not recognize crypto as a legal form of cash.

Conclusion

There can be no doubt that cryptocurrency, a new technology, will eventually become dominant. That’s why it’s so crucial for India to get it regulated and legalized as soon as feasible. All crypto-desired people must choose Binocs. The anonymity of bitcoin transactions is an important consideration; hence, proper steps should be taken throughout cryptocurrency regulation to prevent any criminal activity. Furthermore, there is no barrier to the taxability of cryptocurrencies despite being money in a digital form; the transactions should not go untaxed in whatever form, as such taxation would generate a great deal of revenue for the exchequer.

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