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How to treat cryptocurrency while filing your ITR

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With cryptocurrency being the buzzword in financial circles this year, India has seen massive growth in blockchain-based digital currency. With Indians investing nearly $ 6.6 billion in cryptocurrency, there is much talk about the government developing norms to regulate it.

While this is still a decision to be made, there are many out there who would like to know how to handle crypto when filing their income tax returns.

What are cryptocurrencies and how are they viewed?
A cryptocurrency is a digital asset and a decentralized medium of exchange based on blockchain technology. In layman terms, cryptocurrencies are digital currencies designed to be used when buying goods and services, much like our other commonly used currencies.

In today’s world there are more than 1,500 different virtual currencies to choose from including Bitcoin, Dogecoin, Ethereum, Litecoin, Ripple, Matic and many others. As the Indian government is in the process of putting in place cryptocurrency regulations that are currently awaiting cabinet approval, the amount of money invested in cryptocurrencies has increased dramatically.

So far, the government has not recognized Bitcoin as legal tender in any way. Neither the income tax department has issued a statement on the tax implications of profits from crypto transactions.

ET spotlight special
Can crypto be taxed for ITR?
As a result of the Bitcoin boom last year and the decision by the Supreme Court of India to lift the Reserve Bank of India’s ban on cryptocurrencies, many investors in India have turned to virtual currencies to generate unexpected returns from their investments. We explain how cryptocurrency income should be reported on an income tax return.

First and foremost, it is important to understand that the profits made from the sale of cryptocurrencies can be classified as either capital gains or business income under tax laws. Based on the categorization, it will be determined which tax return form must be submitted and how much tax will be levied on the profits.

Any asset of any kind held by an individual, whether or not related to their business or profession, is defined as an asset under Section 2 (14) of the Income Tax Act 1961. Despite the fact that the term “property” has no formal definition but rather refers to all possible interests that a person can acquire, own or enjoy.

Therefore, if Bitcoin is bought by taxpayers with the intention of making investments, it could be considered a capital investment under the law. Any profit realized through the transfer of cryptocurrency is subject to capital gains tax.

In contrast, if the transactions are significant and frequent, the taxpayer can be determined to be involved in cryptocurrency trading. Profits from cryptocurrency sales would be taxed as operating income in this situation.

2 (3)ET spotlight special
Taxation of crypto for ITR:
However, in relation to India, you will not be able to identify any companies that deal with cryptocurrency. When it comes to stocks and commodities, you can find brokers and traders who trade regularly, but when it comes to cryptocurrencies, you will never find a broker who has a virtual currency as a trading stock in their portfolio.

As a result, any gains from investing or trading bitcoins or virtual currencies will be taxed as capital gains, and in order to calculate capital gains it is first necessary to determine the holding period of the assets. For example, if the asset is held for more than 36 months, the gains relating to gold as an investment are taxable as long-term capital gains (LTCG), and if the asset is held for less than 36 months, the gains are taxable as short-term capital gains (STCG) ( STCG). For cryptocurrencies, however, there is still no such legal clarity on the part of the financial authorities.

Despite the fact that the income tax department has not made a statement on the matter, investors will have to pay taxes on crypto transactions depending on the nature of the transactions.

3 (3)ET spotlight specialIn principle, profits from the sale of cryptocurrencies are taxable according to the Federal Income Tax Act as follows:

(i) Operating Income
(ii) Capital Gains

(iii) Additional or Other Sources

The classification of these transactions is based on the type of transaction and the investor’s intent.

  • Business income:
    The profits made through cryptocurrency transactions are taxable as “business income” if the transactions are regular and the transaction volume is large. Alternatively, if they are to be held for an extended period of time in order to benefit from an increase in value with fewer trades, they can be taxed as “capital gain”.

If a taxpayer is unsure of the correct classification of Bitcoin transactions, he or she can use the assistance of an expert to review the classification for cryptocurrency transactions annually.

  • Capital gain:
    The profits or losses resulting from crypto transactions are taxed under the heading capital gains if they are recognized as “investments”.

The amount of the cost that exceeds the sales value is used to calculate capital gains. If the acquisition costs exceed the transaction value, the transactions are classified as “capital losses”.

When declaring the sale of Bitcoin as business income, the implications of Goods and Services Tax (GST) laws should be considered. In order to deduct all indirect costs from the profits realized from the sale of crypto assets, the charges must be documented. Profits are applied to the other sources of income and taxed at the rates applicable on the income tax tables.

  • Other sources of income:
    When concluding an ITR, crypto assets can alternatively be recorded as “income from other sources” and taxed in accordance with the law. Income from other sources is added to final income and taxed according to the tax rate and tax class of the taxpayer.

In addition, some believe that crypto-asset income should be treated as “speculative business income” and taxed at the highest possible rate. Taxpayers, on the other hand, can benefit from treatment as normal operating income or capital gain until the income tax authorities clarify.

After all, what about mined bitcoins?

Self-generated investments include bitcoins that are generated during the “mining” process and are classified as such. The taxpayer can make the decision of the Supreme Court in BC Srinivasa Setty. to use [1981] 5 Taxman 1 to cover the cost of acquiring such bitcoins, as the cost of purchasing such bitcoins is unknown (SC).

In this case, it was determined that if the cost of an asset could not be determined, the automatic provision for calculating capital gains would fail and consequently no capital gains could be charged on the transfer of such assets. As a result, bitcoins generated through the “mining” process can be tax exempt.

Disclaimer: The above content is non-editorial, and TIL hereby disclaims any warranties, express or implied, regarding it. TIL does not necessarily guarantee, endorse or endorse the above content and is not responsible in any way for it. The article does not constitute investment advice. Please take all necessary steps to ensure that all information and content provided is correct, updated and checked.

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Cryptocurrency

US Senator Calls On SEC Chairman To Provide Regulatory Clarity On Cryptocurrencies – Regulation Bitcoin News

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A US senator has asked the chairman of the US Securities and Exchange Commission (SEC), Gary Gensler, to provide clear guidance on cryptocurrency regulation. The Senator stated that in many enforcement actions, “the SEC has failed to identify the securities involved or the reasons for their status as securities, which would have provided much-needed public regulatory clarity.”

US Senator wants the SEC to provide clear guidelines on crypto regulation

Senator Pat Toomey, ranked member of the U.S. Senate Committee on Banking, Housing, and Urban Development, wrote a letter to SEC Chairman Gary Gensler on Friday regarding the regulation of cryptocurrencies.

His letter followed Gensler’s testimony before the Senate Banking Committee last week. Toomey began:

I’m writing to address the concerns I raised at the hearing about the need for regulatory clarity around emerging technologies such as cryptocurrencies, including stablecoins.

“In order for investors to benefit from a fair and competitive market, regulators must proactively provide rules on how to get to industry,” the Senator said that the SEC “has instead adopted a strategy of regulation through enforcement in this area.” To date, the commission has launched more than 75 enforcement actions against the crypto industry, fines and penalties totaling more than $ 2.5 billion against crypto companies and individuals.

At the Senate hearing, Gensler extolled “the SEC’s success in pursuing crypto-related enforcement measures.” Toomey noted, however, that “in many of these enforcement actions, the SEC failed to identify the securities involved or the reasons for their status as securities, which would have provided much-needed public regulatory clarity.”

SEC Commissioner Hester Peirce is also concerned about the SEC’s approach to crypto regulation. She criticized her own agency in August for taking an enforcement-oriented approach to crypto regulation.

The Senator from Pennsylvania noted that the SEC’s approach was tied to Gensler’s belief that “the likelihood is pretty slim” that a given cryptocurrency platform has no securities. For example, Gensler told Senator Elizabeth Warren at the hearing that the Nasdaq-listed crypto exchange Coinbase (Nasdaq: COIN) could have dozens of tokens, which could be securities.

Recently, Coinbase was forced to abandon its plan to launch a loan product after the SEC threatened legal action and the company alleged it had received no explanation from the regulator. In the meantime, the security guard is in an ongoing proceeding with Ripple Labs and its executives as to whether XRP is a security.

Senator Toomey emphasized:

The SEC has a responsibility to do more than just provide probabilistic estimates.

The Senator concluded his letter with a list of questions for Gensler to answer for additional guidance on crypto regulation.

What do you think of Senator Toomey asking SEC Chairman Gensler to provide clear guidance on crypto regulation? Let us know in the comment section below.

Photo credit: Shutterstock, Pixabay, Wiki Commons

Disclaimer of Liability: This article is for informational purposes only. It is not a direct offer or solicitation to make an offer to buy or sell, or a recommendation or endorsement of any product, service, or company. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author are directly or indirectly responsible for any damage or loss caused or allegedly caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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Cryptocurrency

Crypto plunge a wake-up call — and tax opportunity — for investors

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A detail of the statue of Satoshi Nakamoto, a presumed pseudonym of the inventor of Bitcoin, in Budapest, Hungary.

Janos Sorrow | Getty Images News | Getty Images

The price of popular cryptocurrencies like Bitcoin and Ethereum fell on Friday after Chinese officials stepped up crackdown and essentially ruled crypto illegal.

Government intervention, while substantial, does not necessarily mean that financial advisers believe investors should run into the mountains. But it’s another reminder that crypto holdings are subject to wild fluctuations in price, they said.

“I wouldn’t call this the end of the world,” said Leon LaBrecque, accountant and certified financial planner with Sequoia Financial Group, based in Akron, Ohio. “It’s just a wake-up call.”

“This should be in recognition of the fact that it is a volatile asset and that all the ups and downs are a match,” he said.

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This volatility opens up opportunities for tax planning that may only be a few months away, advisors said, depending on the Democrats’ final compromise on federal tax law.

Bitcoin prices had fallen 6% to around $ 42,000 at 3 p.m. ET Friday afternoon. Ether, the second largest digital currency, fell more than 8% to around $ 2,890.

The People’s Bank of China terrified investors after declaring all crypto-related activity illegal. These activities include, for example, trading services and foreign exchanges. This is the latest move in the country’s wider crackdown on digital currencies.

The ban on Bitcoin and other cryptocurrencies can be of concern for current and prospective investors as the government limits buyers for a significant segment of the world’s population, advisors said. And other governments are likely to have additional regulations as well, they said.

But these can’t make much of a difference in terms of long-term prices. A daily slump in crypto costs, which may feel significant at this point, is likely just part of a longer-term price correction towards an average price, advisors said.

“Will government regulation make cryptocurrencies volatile? Yes,” said Wayne Wilbanks, managing principal and chief investment officer at Wilbanks Smith & Thomas Asset Management in Norfolk, Virginia. “Will it make crypto redundant? No.

“I don’t think China’s regulation, or even US regulations, will make that much of a difference in the long run,” he added.

Bitcoin, for example, is still up around 40% year-over-year despite the slump on Friday. (It’s far from its April high of around $ 63,000, however.)

To this day, volatility is a signature of cryptocurrencies. This year, for example, prices have fluctuated sharply after tweets from Tesla co-founder and crypto enthusiast Elon Musk.

Advisors usually recommend that investors allocate a small portion of their portfolio (anything that they would lose entirely) because of the risk involved.

Tax advantage

Investors can take advantage of recent volatility, according to Jeffrey Levine, CFP, Accountant and Chief Planning Officer at Buckingham Wealth Partners in Long Island, New York.

Equity, crypto and other investors can “reap” investment losses for a tax advantage. Basically, you can sell a lost investment (e.g. Bitcoin) and use the loss to destroy the gain on a winning investment elsewhere in your portfolio.

This “tax loss harvesting” reduces (or eliminates) the capital gains tax owed on the estimated value of an investment sold.

However, unlike stock investors, crypto investors who are sold out can quickly buy back into the same or similar digital currency. As a result, if the volatile asset price recovers shortly thereafter, they can receive the above tax benefit as well as a portfolio benefit.

House Democrats proposed closing this crypto loophole after this year to reform tax law.

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Cryptocurrency

A financial TikTok influencer with almost 500,000 followers says bitcoin is going to ‘get slayed’ – and shares how cryptos and stablecoins make up his trading strategy | Currency News | Financial and Business News

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Mason Versluis

  • 21-year-old Mason Versluis has almost 500,000 followers on TikTok, where he gives tips on crypto and markets.
  • He recently spoke to Insider about how he chooses which coin to invest in and why.
  • Versluis said he would like to see bitcoin “slayed” as other coins have far more real-world use cases.
  • Sign up for our daily newsletter here, 10 things before the opening bell.

Bitcoin is the largest cryptocurrency by market value and is dwarfing its competitors for the time being. But the rise of crypto rivals with far more real world uses means it will be dethroned sooner rather than later, according to financial TikTok influencer Mason Versluis.

The 21-year-old Versluis also bears the username Crypto Mason and has almost 500,000 followers on his TikTok account, which he uses to shoot short videos to educate his viewers about crypto and the markets.

Versluis, who has been trading crypto since he was 15, recently spoke to Insider about his prospects for the market.

“The psychological thing that Bitcoin is always number one and king can be gone. By ‘kill Bitcoin’ I mean that I want something to happen and then we’ll see what happens afterwards, ”said Versluis.

Bitcoin has a market capitalization of just under $ 800 billion, according to CoinMarketCap, of the roughly $ 1.9 trillion that the entire crypto market is worth.

In the last 12 months it has gained almost 350% in price, but Versluis believes there is more value elsewhere.

“My dad told me about XRP when I was 17 and I’ve been back ever since,” he said.

“I’m one of those people who think XRP is a ‘better bitcoin’. And it actually solves the payment problem better than Bitcoin ever can or will, ”he added. Ripple Lab’s XRP token is used in fast payment systems – an area where Bitcoin can’t really compete given the comparatively slow network speed. One of the bigger crypto coins, XRP has kept pace with Bitcoin over the past year, rising 320%.

Ether, the native token of the Ethereum network, is the second largest cryptocurrency and accounts for around 20% of the market. The blockchain’s ability to run decentralized financial applications, smart contacts, and other protocols has resulted in an onslaught of investor money in ether this year, up nearly 800% over that time.

“It must have use cases, that is: Does this token do nothing? Am I only buying this token because I think it will increase in value?” said Versluis.

“That’s what I personally invest in, just because of the potential – they actually do something. Ethereum has so many decentralized applications built on it, ”he added.

When it comes to taking a position in a coin, Versluis says he’s not a day trader.

“It’s a lot of stress, you have to sit at the computer and watch the markets,” he said.

“I’m going to see an opportunity, put in some money and basically ramp up this rocket until I think it’s time to sell it. I sell them off and put them in a stablecoin like USDT or USDC. And then I just make profits and reinvest part of it in my main portfolio. So it’s a slow process, “he said.

As a relatively young trader who says that part of his passion for crypto is the decentralized, free nature, the question arises what Versluis thinks about the regulation in this market. Unlike many crypto fans, he’s not against it. However, he believes that all rules have to adapt to the reality of the crypto market and that one size does not fit everyone.

“It’s a digital world. And we’re only getting more digital and virtual, ”he said.

“You can’t just take the old system and the laws and slap it on crypto. It doesn’t work.

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