Crypto investors are in a fix because of the new taxation rules that kicked in this financial year.Even though some cryptocurrency investors have suffered hefty losses overall on their investments, they have to pay taxes on transactions where they made gains.This is because, unlike equity and other assets, where one can adjust gains against losses and even carry forward long-term losses for eight years, crypto currency investors aren’t allowed to adjust gains against losses.For instance, Manjit Chahhar, 42, an architect from Gurugram, had invested Rs 1 lakh in cryptos.During the year he earned a profit of Rs 25,000.But he also suffered losses to the tune of Rs 45,000.
So, even though the total portfolio amount of Rs 80,000 is Rs 20,000 less than the principal amount, he has to pay tax at 30 percent on the Rs 25,000 that he earned or Rs 7,500.The government clarified in Parliament that losses from different cryptocurrencies such as Bitcoin, Dogecoin, Ethereum cannot be adjusted individually.
To be sure, when it comes to assets such as stocks or real estate, a loss made in one stock or property can be adjusted against gains made in another stock or property.In such assets, if you have made losses and cannot offset them during the same assessment year due to lack of profits, you can offset these losses over the next eight years.
“Even though the official taxation at 30 percent is at par with lottery winnings, the real taxation is 50-60 percent, as one cannot adjust the gains against losses.Additionally, the loss incurred in one crypto currency and the gain made in another cannot be adjusted,” says Karan Batra, Founder of CharteredClub.com.
Also Read: Crypto crash leaves investors in a tizzy.What should their next move be? Caught off-guard While many investors are now waking up to the tax deduction at source (TDS) of 1 percent, they haven’t been informed about the taxation changes by exchanges.“I got to know from a group of crypto investors about the TDS ruling and was not informed about it from the two apps that I have been using to trade in cryptocurrencies,” says Deepali Lakhanpal, a resident of Mumbai.Usually, when investors buy and sell stocks, the capital gains statement is made available to demat account holders to ease the taxation compliance burden.
But none of the crypto exchanges and applications currently offer a capital gains statement.Investors get notices Due to lack of any regulations around crypto currencies prior to the February 1, Union Budget presentation, investors had declared these assets under other fields of taxation such as business income and capital gains.They found it difficult to calculate the exact profits and gains.Making matters worse, many crypto exchanges have shut down over the past year and many investors do not have any statements.
“The account merely reflected $5 purchased, $1 sold at the end of every day.
I don’t have any overall statement from the exchange,” says an investor in Koinex, which shut down in 2019.He did not want to be identified.However, the Government has tried to source details of the investments through these exchanges, namely Zebpay and Koinex, and sent notices to these individuals.“The Income Tax Department has procured data from crypto exchanges and, based on PAN details, sent pre-intimations and notices to those individuals.
A couple of crypto exchanges have shut down and hence individuals couldn’t download past statements.They have an automated ledger system, which is too complicated to comprehend,” says Batra.As a result, there are discrepancies in the traded value declared by the individual and the amount declared by the exchange.One of the taxpayers that Moneycontrol spoke to says that he has declared a traded value of Rs 22 lakh based on the bank details.But he has been told by the Income Tax Department that a total traded value of Rs 1.3 crore is reflected against his PAN.
Digging up the past The basic challenge most crypto investors are facing these days, especially those who have got income-tax noticees, is to compile their profit and loss statements of past transactions.Even going back four to five years, say some chartered accountants that Moneycontrol spoke with.Many didn’t want to be Quote: d for this story.Further, say some of these CAs, is the requirement to prove their source of income for the money that individuals invested in cryptos.This profit and loss account statement should be similar to what you get for your stock market capital gains calculations.
If your crypto exchange has provided you an account thus far, then that’s good.For the rest, individuals might just have to go back to their exchanges to get a proper summary.Easier said than done, say many CAs.The second big challenge is to figure out how much tax you would have paid in the past on cryptocurrency gains.Since Budget 2022 announced a 30 percent tax on cryptocurrencies, it cannot be assumed that such gains could be tax-free in the past.
Instead, CAs tell us that it must be demonstrated to the tax department on what basis each and every crypto investor paid taxes for the previous years; either capitals gains tax or the maximum tax rate based on their income tax slab.It remains to be seen how past crypto transactions- and even taxes paid on them at a rate lower than 30 percent – would be treated by the tax department.The saga continues…Help is on the way So, the question is how to compile a detailed account of your crypto trading.A crypto investor told Moneycontrol on condition of anonymity that his chartered accountant billed him Rs 1 lakh for this computation.
Soon, however, there will be services available for crypto currency investors.“There are some aggregators who are approaching e-return intermediaries (private portals that help taxpayers file their tax returns) to offer a statement of account service to cryptocurrency investors and calculate the overall gains across multiple crypto currencies,” says Sudhir Kaushik, co-founder and CEO, TaxSpanner.com.A Canadian company, is also expected to set up base in India to offer account aggregation and portfolio summary services to crypto investors.Also Read: When crypto prices fall, Ayushmann Khurrana, Disha Patani, Ranveer Singh are of little help Shifting abroad to trade freely Owing to the high taxation level and upfront TDS of 1 percent being levied on the trade value, serious traders are considering shifting to countries with a crypto-friendly tax regime.
“Some of my clients have shifted their base to Dubai and Ireland due to their crypto friendly regulations.They realised that even crypto exchanges were shutting shop in India and then Indians were being lured with free licensing zones,” says a chartered accountant, requesting anonymity.The CA tells Moneycontrol that he knows at least five people who have recently shifted abroad as much of their income is generated by cryptocurrency trading.He also showed us a Facebook page of people offering to help others move abroad to trade in cryptos.This is because the Indian government cannot levy any tax on the entity or the individual if they have a turnover of less than Rs 50 crore.For example, an investor who has investments in crypto assets of up to Rs 15 crore abroad ends up saving Rs 10-15 lakh on the profits.”,.
