Contemplating buying cryptocurrency? Be ready to pay taxes on your investment gains

September 15, 2021

The Indian government is looking to tax cryptocurrency trades and ecosystem in the country, news website ET Now tweeted on 13th of September. The tax department is in favour of taxing crypto exchanges and trades and the government feels that any activity that generates income must pay tax, Scroll reported.

The Indian government is planning to compartmentalise virtual currencies and their tax treatment on the basis of their use cases – payments, investment, or utility. While it is not yet clear that the Indian government will set out a regulatory framework for virtual assets, it has provided some provisions for transparency.

Any gains after holding a cryptocurrency for 36 months or more would be taxable as long-term capital gains, while gains accrued during a shorter period would be categorised as short-term capital gains. These gains are taxable as per the slab rates applicable to a taxpayer, while long-term capital gains are taxed at the flat rate of 20% with the benefit of indexation, according to Harsh Bhuta, partner at accounting firm Bhuta Shah & Co. Bhuta says “much clarity” is still required on how to treat the different types of gains and income.

The tax rate under the long-term category can decline once the indexation benefit is applied, which allows the investor to adjust for inflation during the period these investments were held. Every year, the Central Board of Direct Taxes releases the cost inflation on which these assessments are done.

On the other hand, if a trader carries out cryptocurrency transactions frequently, any profits thereon would be taxable as business income.

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