Things to keep in mind while choosing a crypto tax calculation software

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In India, where cryptocurrency is still at an evolving stage, crypto tax calculation is not something that comes easy.

While many software programs are being released to make crypto tax calculations simple, there are things that investors need to keep in mind while using them.

Also Read: Meet the new fintech that helps calculate your crypto tax liability

Starting July 1, buyers of digital assets in India are required to pay a 1 percent tax on the amount payable to sellers. This is in addition to a flat 30 percent income tax on earnings from cryptocurrencies that started on April 1.

The government’s decision to tax cryptocurrency transactions divided investors into two.

Nonetheless, if you are a crypto investor, you have to follow the current taxation norms. To make things easier, tax calculation tools like TaxCryp, Clear, KoinX, etc., have emerged.

Moneycontrol spoke to several experts in this domain to understand what points investors should keep in mind while using crypto tax calculation platforms.

How do crypto tax calculation tools work?

Most of them are designed to provide solutions to both exchanges and investors. These tools help investors understand the tax liability, and they are backed by an experienced team of chartered accountants and tax specialists.

Computing the tax liability manually can be a tedious task as crypto has an associated cost basis attached to it, given the multiple fluctuations in value, moving cost basis, mark-to-market value, and multiple types of transactions. Every single incidence/ activity needs to be tracked and computed for taxation.

The emerging tools will help you understand the entire process in a couple of simple steps. Investors just need to attach their crypto wallets to the system. Besides offering full-scale tax compliance, which includes understanding how they should file their returns, and how much tax must be paid, the system will help prepare the profit and loss account. Expert advice for crypto investors with best practices for saving taxes are also provided.

Some tools also provide a detailed breakdown of the capital gains and losses and let users generate a downloadable, detailed tax report that can be shared with their accountants or help them file taxes.

Taxcryp’s co-founder and director Indy Sarker says investors must ensure that they pick the most appropriate marginal income tax slab. Individual investors must appreciate that crypto taxes are calculated on all gains, and there are no provisions for offsetting losses (from the gains) to arrive at a net gain number, he said.

Things to keep in mind while choosing a crypto tax calculator

Crypto taxation is comparatively a new phenomenon. Therefore, individual
investors may find it challenging to calculate their tax bills on hundreds of transactions every year. Further, the tax community is not entirely versed with the nature of many crypto assets.

Mudrex’s founder Edul Patel believes that since this is the first time that crypto is being taxed, these platforms are a boon for investors in estimating how much the individual is liable to pay on the gains from crypto transactions.

According to Rajagopal Menon, Vice President, WazirX, a good tax calculator must consider the Average Buy Price (ABP), which is the weighted average of all delivery purchases carried out in a particular coin, invested value, which is the amount invested in tokens, unrealized P&L (profit & loss), which is the current profit or loss on an open position and realized P&L, which occurs when an investment is sold for a higher or lower price than the purchase price.

Mohammed Roshan, chief executive officer and co-founder of GoSats, says investors must choose a platform with integrations to all major exchanges in the country, as well as support for NFTs, DeFi and other innovations in the space.

“These would instil investor confidence in a company and also makes life easier, as they no longer would need to manually key in all transactions,” he says.

Ashwani Kumar, founder, HelperWorld, suggests that a crypto tax calculator helps to streamline the process by retrieving your data across all your cryptocurrency platforms, auto-generating your tax reports, and ensuring total compliance with tax laws within your country.

According to him, an individual should be reliable and trustworthy. Partnerships with reputable financial technology and accounting companies are a few indicators of trust, he said.

Data security is central to the selection of a tax calculation platform as an investor needs to share confidential information with them.

Crypto exchange ZebPay’s CEO Avinash Shekhar says: “The onus is on the investor to fully disclose all taxable events related to Virtual Digital Assets (VDAs). In case of any omissions, tax calculations will not be accurate. Customers of these platforms should be wary of sharing sensitive log-in information that could compromise their crypto exchange accounts or wallets.”

Grey areas in taxation

Industry leaders believe that India is at an early stage of taxing digital assets, and, hence, it will take some time for the country to get to a balanced and nuanced view on how best to tax this asset class while ensuring appropriate checks and balances to minimize systemic risk and to ensure investor protection standards.

Anmol Chawla, co-founder and director of Taxcryp, believes that the Indian government needs to address some grey areas, including clarity around the specific tax treatment of certain types of transactions, like Air Drops, Staking, Forking, etc.

If these transactions need to be taxed at the time of receipt of the time of sale (of the underlying asset), differentiating crypto gains from other income as reported in the tax form, and default placement of crypto transaction gains in the tax form.

Punit Agarwal, Founder and CEO of KoinX, believes that one of the grey areas is how investors can comply with TDS if they trade on a foreign exchange (eg., Binance, KuCoin, etc.) or on DEX (eg. Uniswap or Pancake Swap).

Further, he says that, for employees receiving their salary in crypto, the concern is whether this will be part of the 30 percent taxes on VDAs or it will fall under Income- Tax as per slabs.

“We’re also unsure of the mechanism to arrive at the cost of acquisition. For a miner, the cost might include the infrastructure cost, and for a regular trader, that might be the exchange fees/gas fees he’s paying on each trade,” he said.

Future of crypto in India

According to a report by Nasscom, the Indian crypto tech industry has the potential to reach $240 million by 2030. The same report pegs the potential to create jobs at over 800,000 by 2030 through investments and cost savings.

Vinay Tiwari, Head of Finance at CoinDCX, says: “We believe a well-regulated space will drive the transformation of India’s economy towards a financial and internet ecosystem that is decentralized and digital-first. Overall, cryptocurrency growth in India is poised to be on an upward trajectory in the near future. For the market to achieve its potential over the longer term, smart, pro-innovation regulatory reforms and solutions to market volatility will be critical.”

Dileep Seinberg, Founder and CEO, MuffinPay, believes India has the potential to become the crypto capital of the world. However, to realise this dream, there has to be a comprehensive approach to the new-age technology, he said.

Kazim Rizvi, Founding Director of The Dialogue, says, “Despite certain regulatory challenges with respect to the 1 percent TDS, there is an increase in crypto investments in India, though this is either happening through foreign exchanges or P2P. If the government can provide a regulatory direction to crypto, it will help in the growth of the Indian crypto ecosystem, and will also put a check on the wealth is being taken out through foreign exchanges.”