Crypto investors are in a spot. They have no clue about how gains from their investments in cryptocurrencies will be treated. As they await regulation on cryptocurrencies to get some clarity on the matter, many are turning to the few experts available to advise them.
Many such investors have their own takes. Some young crypto investors say that since virtual currencies aren’t regulated in India, income derived from them isn’t taxable.
Some fear that if they disclose gains from cryptocurrencies in their income tax returns, the government may penalise them. Still others think that crypto is taxable only when profit is realised in rupees in an Indian bank.
These are among the issues that Anoush Bhasin, a chartered accountant who runs Quagmire Consulting, tries to address on YouTube and social media platforms every day.
He set up the company with the aim of advising investors on blockchain and crypto taxes. Over the past year, as the number of young people investing in crypto has increased, so has the demand for Bhasin’s advice.
Bhasin is among the few chartered accountants in the country who advises crypto investors. While there are not more than 20-30 CAs looking into this space, he says many also advise their clientele not to invest in crypto because it is highly risky.
The Indian government decided recently to regulate cryptocurrencies by introducing a bill in the winter session of Parliament.
Over the years, the crypto space has faced a dearth of tax consultants and the gap is becoming more glaring as new products such as non-fungible tokens (NFTs) become popular. The crypto community is trying to address its concerns through referrals and close networks.
“There is no clear segregation yet as to how these gains are taxed. Even while filing taxes for trading income, many face a lot of problems,” said Parang Mehta, chief product officer of Havenspire, a community platform that advises youngsters on the right ways to invest and currently has about 220,000 users. “A way to solve this could be fintech firms tying up with tax consultants, the way Zerodha has started, but currently there are a lot of questions and conversations around it and finding answers is difficult.”
“I handle around 150-160 crypto investors now as there are only a handful of chartered accountants who actually understand the space and can do the processes,” said a tax consultant requesting anonymity.
Some youngsters seek help from experts abroad and apply the learnings here. Further, experts say that many crypto-based startups are registered in Singapore and other countries, which becomes easy for them.
There is speculation that the bill on cryptocurrencies will also propose high taxes on gains for investors. Crypto investments in India increased to over $10 billion in November from $900 million in April 2020, according to Credit Rating for Exchanges Blockchains and Coin Offerings.
At present, there are no explicit provisions dealing with the taxation of cryptocurrencies under the Income-Tax Act, 1961. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is expected to clarify this aspect.
According to Neha Nagar, founder of TaxationHelp and a content creator with over 700,000 Instagram followers, India has the highest number of crypto owners in the world and one must be thorough with the research and statistics while investing.
“Some tax experts are treating crypto gains as income from other sources, while some are treating cryptocurrency gains under the head income from capital gains, just like capital assets,” she said. “Although cryptocurrency is most likely to be classified as an asset class, it might get treated just like debt securities.”
Gains from cryptocurrencies held for less than three years could be considered short-term capital gains that attract tax at the current tax slab, Nagar explained. Earnings after three years will be considered long-term capital gains, which will be taxed at 20 percent with indexation benefits.
“The bill will give us better clarity,” Nagar said.