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Investors and experts have more questions than answerson crypto taxes
Tax on cryptocurrencies or virtual digital assets announced on Tuesday is set to create more problems for investors and their tax experts on how to compute gains and taxation.
Many tax experts seem to have raised questions about what would happen to the gains made by investors in the past year. That is, whether the announcement on tax will be retrospective.
"The concerned amendments are prospective from April 1, 2022. This means that for such transactions till March 31, 2022, taxation should be applicable at normal income tax slab rates or capital gains tax rates (as the case may be) and not the flat 30% rate," said Sudhir Kapadia, national leader-tax at EY India.
Also, what would happen to the losses made by the investors in the earlier years—can that be carried forward? The government has said that losses cannot be set off—but if the tax law is not retrospective, losses from the past can technically be carried forward, say tax experts.
"The contentious issue, however, is the unadjusted carried forward losses. Whilst the tax department may like to contend that such a loss cannot be set off from 1 April 2022 (AY 2023-24) onwards, there can be an alternative argument that such a loss, having already crystallised before this amendment being made effective, should not be impacted by these changes and allowed to be carried forward and set off as per normal provisions," said Kapadia.
There could also be an issue with how exactly the tax is computed from April to April, say tax experts.
That is, whether Indians who saw their cryptocurrencies appreciate during the year and traded them for other crypto assets without converting them back to fiat or Indian rupees (INR) will face a 30% tax as well.
Crypto investors in India are also trying to understand how tax will be applied in various real-world situations. Some CAs interprets that crypto losses can be set off against crypto gains in the same year, while others differ.
Take another situation, if an investor has mined his crypto, then could the cost of his mining setup be set off against the sale of crypto?
A few CAs were advising clients on treating crypto and NFTs as business income and also charging expenses against crypto gains, but that won't be possible now.
"Digital assets will be taxed as a separate block at 30% with no set off of losses under other heads. They have been treated almost like speculation income. The way the provisions are worded, it may be a challenge to set off gains from one case or digital assets against losses from another class of similar assets," said Dinesh Kanabar, CEO, Dhruva Advisors, a tax advisory firm.
A lot of small investors seem to think that tax can be avoided by doing peer-to-peer or P2P transactions and going through decentralised exchanges where tracking of transactions will be very difficult or impossible for the government.
Investors also say they need more clarity from the government on two major issues: how will crypto swaps be taxed and how do you deal with taxes on transactions taking place on international exchanges?
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