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Failure to report crypto trading income / loss may result in criminal consequences
When the coronavirus pandemic swept the world, shutting down businesses and other economic activities, a certain gloom reigned around the markets. But the rise of cryptocurrency has helped dispel some of the uncertainty. People have decided to invest in this emerging industry and many have seen their wealth grow rapidly, although the crypto world has remained largely unpredictable and volatile. Soon calls were made to tax the income generated by cryptocurrency investments. There was, however, a problem. The cryptocurrency was not legal tender and therefore no regulations or guidelines on how income would be taxed.
This has created confusion among taxpayers. Several financial experts have since discussed the matter and have suggested that people report their cryptocurrency income as capital gains tax. But how should one calculate the capital gains tax on crypto trading?
If a crypto asset is held as an asset, the resulting profit or loss should be reported as a gain or loss, according to experts. If the asset is held for more than 36 months, the gains should be classified as long-term capital gains and will be taxed at 20%, in addition to the surtax and tax where applicable. Otherwise, it should be classified as short-term capital gains and taxed at the applicable personal income tax rates.
Take the example: you bought cryptocurrency coins in April 2019 for Rs 80,000 and sold them for Rs 120,000 in December 2020. Here the holding period is less than 36 months and therefore the Short-term capital gains tax rules will apply. You earned Rs 40,000 by selling the asset, so this amount will be added to your taxable income and you will be taxed according to your tax bracket.
Let’s take another example: you bought cryptocurrency units in May 2016 for Rs 80,000 and sold them in December 2019 for Rs 3,000,000. The holding period is greater than 36 months and therefore capital gains Long termthe rules will apply. This income will be taxed at 20 percent with an indexation benefit.
It is important to remember that failure to report cryptocurrency trading income / loss can lead to criminal consequences and carries the risk of legal action.
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