What are Crypto Gains?
This is a term that refers to the profit of an investor when cryptocurrencies increase in value. In other words, for every one percent increase in the value of digital coins, an investor can make gains based on their portfolios.
The question then arises as to whether or not these gains can still be made given new market conditions and considering all the changes that have occurred in just the past few years. However, we believe that they will still play a very important role in future markets due to their flexibility, security and accessibility.
Cryptocurrencies are highly speculative in nature, so investors should take caution when considering new ones or following in the footsteps of others without thoroughly investigating what they’re doing.
Things To Consider While Crypto Taxation
Consider the Capital Gains tax implications which will depend on whether one made a profit on their investment or if they purchased the coins for investment purposes. If crypto gains are considered as income and not capital gains, the investor will have to declare those earnings as income at year’s end, just like they do with any other money they make or receive during the year. In some cases, though, crypto gains can be considered capital gains. This is particularly true if the cryptocurrency was purchased with the purpose of investment and a profit was not realized immediately. Unlike income from other sources, capital gains from investments don’t have to be declared annually. Instead, they are affixed to the investor’s gains for a specific tax year and are only taxable when realized or liquidated.
Cryptocurrencies, at their core, have always been intended as an alternative form of cash or currency that could be used to buy goods and services, as well as being an investment opportunity.
Crypto gains: Tax Implications Pre-Budget (FY 2021-2022)
Crypto gains/profits made by trading in Crypto assets (both in INR and Crypto pairs) will be taxed as Capital gains based on a holding period of 3 years. Crypto assets sold within 3 years will be considered short term gains and taxed at applicable slab rates. Crypto assets sold after 3 years will be considered long term gains and taxed at 20%.
How to compute the Profits?
Profit = (Sale Price – Buy Price) X Quantity sold – Expenses
Example: Mehul buys 1 Ethereum for Rs.1L on July 1, 2021 and pays Rs.100 as brokerage. He sells 1 Ethereum for Rs.2L and pays Rs.200 as brokerage. Let us find out his Profit and Tax amount.
As we know, Profit = (Sale Price – Buy Price) X Quantity sold – Expenses
So, Mehul ’s profit = (Rs.2,00,000 – Rs.1,00,000) * 1 Ethereum – Rs.300
Profit = Rs.99,700
Tax Implications Post - Budget (FY 2022-2023) For Crypto Gains
From April 01, 2022: Crypto gains/profits made by trading in Crypto assets (both in INR and Crypto pairs) will be taxed at a rate of 30% (plus surcharge and cess). In addition, 1% TDS will be deducted on every sale.
How to compute the Profits?
Profit = (Sale Price – Buy Price) X Quantity sold
*No deduction for any expense
Tax on Profit = 30% only on Profit
*Tax will be on each profit. Loss will not be set-off
Example: Sunil buys 1 Ethereum for Rs.1L on July 1, 2022 and pays Rs.100 as brokerage. He sells 1 Ethereum for Rs.2L and pays Rs.200 as brokerage. Let us find out his Profit and Tax amount.
As we know, Profit = (Sale Price – Buy Price) X Quantity sold
So, Sunil’s profit = (Rs.2,00,000 – Rs.1,00,000) * 1 Ethereum
Profit = Rs.1,00,000
TDS at 1% deducted by the exchange on the Sale of 1 Ethereum for Rs.2L = Rs.2,000
Tax at time of return filing:
Profit : Rs.1,00,000
Tax at 30% on Profit = Rs.30,000
Less: TDS = Rs.2,000
Balance Tax to be paid = Rs.28,000
Final Thoughts
There’s an incredibly diverse array of cryptocurrencies on the market today, and it’s not going to slow down in the coming years. While some have a very low ROI, there are those climbing way up and certain ones that we may not have even heard of yet. When investing in cryptocurrencies, make sure you are well-versed with related Tax scenarios as well.
