CRYPTOCURRENCY TAX LAWS QUESTIONS & ANSWERS IN INDIA 2023
CRYPTOCURRENCY TAX LAWS QUESTIONS & ANSWERS IN INDIA 2023
CRYPTOCURRENCY TAX | Today’s latest tending question
& answers session on the taxation of cryptocurrencies in India 2023.
 |
TAXATION OF CRYPTOCURRENCY IN INDIA |
WHAT
IS THE TAXATION OF CRYPTOCURRENCY IN INDIA
Hello, This article contains information that is beneficial
to every single person who’s making profits
from cryptocurrencies by any means. Now, there is a lot of information in this article on taxation.
Hi everyone welcome
to another article in the last 1 week since I put out a tweet about paying
your income tax on crypto profits.
I know she runs quagmire consulting which specializes in taxation for people like us who sort of
invest in trading cryptocurrency who
make money out of cryptocurrencies.
I’ve been seeing on your Twitter there’s been a lot of hue
and cry about what’s going on with WhatsApp telegram.
I have actually started shouting and people are like, please
wait two days just wait two days right. I also want to say, you know, before
you start, you and I, we go along, a long back.
We have done an article
on taxation, I don’t know why people are not following it. But it’s their
ongoing currents and now we work
with economic times and FinTech TV
and we do this bi-monthly show where we both are on economic times now on TV.
You know, our stuff in the crypto space in India on different
names you’re working on media I’ve been working on taxes, but FinTech TV and 18 hours away, so that you know we could
come together I could talk about taxes
accurately you could bring your media expertise and sort of the idea is that
you know you enhance or you grow this ecosystem and nothing better than et now
and FinTech TV to you know get it
mainstream and teach people about digital
assets. Absolutely.
Understand
the taxation on cryptocurrencies. For me, it’s a bit simple because I’ve been talking to you and I
have some of my knowledge as well
but I’m starting to realize that a lot
of people made money this year, and who are quite young, and have probably
never paid tax or never filed an income tax return.
Question – So for them, this is
very new. So let’s start with a very
simple basic question. Are you supposed to pay tax, when you make a profit out of cryptocurrencies one, either
by trading, or if you get paid by cryptocurrencies, or if you just, you know, get an
interest or something for holding cryptocurrencies all three Can you tell us?
Answer
– Sure.
So, we have to go back to the Income Tax
Act and see how it’s worded for this. It’s very as if you look at
different statutes like FEMA or you know any other Securities Act or something.
An item needs to be specifically mentioned there
for something to regulate or categorize or to recognize that that item, right,
the Tax Act is worded very very clearly it just says all incomes are taxable.
Whether you’re earning from staking you’re running validator
nodes you’re, it’s uniswap it’s
centralized exchanges, whatever it is, it constitutes an income, and at the end of the day the Income Tax Act says all incomes are taxable,
unless specifically exempt specifically
exempt means that income like if you’re a farmer, and this is not yield
farming, this is actual.
As long as it’s it’s
specifically not exempt you have to pay
your taxes. All you need to do is figure out which head, you know, your income class classifies in and
falls under best and disclose it accordingly. There is absolutely no confusion about the fact that crypto
income is taxable.
And you have to pay taxes, you know, as per whatever type of classification it
falls under.
Absolutely. And now I want to you, you did mention that different heads, and I will come back
to that. But before that I also want to say that you know I want to discuss.
How
many equations, we’re going to cover in this session as basic and as advanced
as they can be. We want
to cover –
Question
– How do we calculate tax on these different heads?
Question
-What exactly are the tax requirements for each individual?
Question
-How they can pay taxes when they can file returns?
Question
-How they can mention what they have paid in taxes in the US?
Question
-What they have made as profit in the income tax data?
All of
those things, maybe want to cover basics, as well as any last.
Answers
–
Now let’s start with the basic crypto
trading or profits from crypto can be, as I said before, three ways, right or four ways there can be
many, but one is your trading regularly right you’re trading like like a
mania you’re trying to get like 0.5% 1% arbitrage every day and you have piled
up a book of like 3040* crores.
In a year. Okay, of
transactions. That’s one way. The
second way is you simply buy today.
Bitcoin is at whatever 30 lakhs or whatever 35 lakhs. Tomorrow it’s at 45,50,60 lakhs you
sell it and you make 10,20,30 lakhs profit. That’s the second.
The
third way is you know just keeping it and making some interest on top of it or mining, you know, staking or mining and all of that.
So let’s break it down in each and every section. Let’s
start with the trading like regular traders.
Question
– How do they calculate?
Right, primarily, you have to see the nature of your activity, and what
is the intent of getting into bitcoin or cryptocurrency or digital assets right? If you are, if you are in it for capital
appreciation, like, a lot of people don’t understand
technical analysis, they don’t want to get into it, to see the charts
and sort of you know just scalp the market
see you buy low and you sell high and
stuff like that.
Answers
– They’re
in it for capital appreciation they want to hold it for three or four years by
one’s sold or you know keep buying at different occasions and then just sell
once after a specified period of time, as
we call holders, that gets classified as an investor, that activity is an investment
activity, and for tax purposes that asset will be categorized as a capital
asset.
So, depending on your
holding period. If you hold for less than three years you pay taxes as a short-term capital gain. And if you hold for more than three years, you pay
taxes but long-term capital gains, I want to stop you there.
Question – why are we saying your best short term
capital gains and long term capital gains because there is no definition for it
for crypto in it right, technically, So none of the acts in India define crypto
per
sell, but if you look at the definition
of a capital asset under the Income Tax Act.
Answer
– It
is a very inclusive definition, it says, everything is property except XYZ
right, and it says how you’re supposed to treat the property if whatever you’re using falls under the property.
So, capital asset or
digital assets will easily fall under the definition of capital as it as long
as you are getting into it for the purposes of investment for capital
appreciation and not for, you know, buying, selling every day as you mentioned
like you know you create those 30 40,000 trades maybe in a month or a week,
that definitely is not a capital investment as such.
Until then, short term or long term capital gains will
always be applicable, as long as the asset that you’re holding is a capital
asset. So, for all holders, you will be able to classify and disclose your
holdings as capital assets and then definitely, depending on your period of
holding you pay taxes as for short
term or long term capital gains.Understood. Okay, next question.
Question – when we
are trading every day or every few days, you know, just to make money out of it.
Answer
– Sure.
So that’s the second aspect now, either you get into digital assets for
investing for holding for a long period, or you get into it for trading right
you know you do not have time to market you know it’s a good time to buy right now is probably a good time to sell later.
So people who buy and
sell continuously are in it for the volatility, they are in it for, you
know, for making money off of you
know just scalping the market,
basically, it was point five 1% rates, and they have to.
What they’re essentially doing is a commercial activity
or also known as trading and trading is required to be disclosed as a business
income in the income tax return.
Very straightforward. Eventually, you will have to see all of
your costs versus all of our selling price, the differential between total cost and difficulty selling price
will be your profit, and you will have to disclose it as business income,
at the end of the year.
we’ll get into how to
calculate this in a bit so please stay around. Lastly, there are these
other sources of income right levers
like staking mining airdrops.
Question – How do we calculate tax on that where do
they go.
yeah sure so you have to see whether it’s like a full time
activity or not right. If some people are running mining rigs like they spent their entire day just you know setting
up the mining facility running it,
you know, maintaining the the hardware the equipment and all those sorts of
people definitely have to sort of disclosing it as a business income very similar
to the commercial activity of trading that we discussed initially, it’s you
know your total revenue minus total cost is equal to the profit that you have
to pay tax on as long as if you’re
getting like very small incomes in the form of an airdrop or, you know, like
certain.
You got like a hard
fork of something, or you know, basically any income which is insignificant, you can usually just club it with
the bigger chunk of income that you’re getting from digital assets right, suppose I’m an investor right now I am
getting cap I’m holding a capital asset. And while selling that I also sold a certain change of whatever airdrop I had got, I can always plug that income,
because the amount is insignificant it’s not gonna make too much of a
difference, but if you’re doing it, as, as, you know, a full-time activity or
as a significant part of your operations, then you should be disclosing it as a
separate business.
Amazing. Okay. I will tell you something that I write and
tell me if I’m doing something.
Question – what I’m doing is right or
wrong okay so that sort of sets the right exam. I write and I trade on not only
on Indian exchanges I also trade on internationally.
Answer
–
There is no current definition on what
are the taxation rules when it comes to doing crypto to crypto transactions. That’s the one that. But what I do
essentially is at the end of the year. I just checked my bank account, I, I
bring everything, all I enter that I have into my bank. I just checked my bank
account.
What are the outputs, outgoing transactions, and what are the
incoming transactions? If the difference of outgoing incoming minus outgoing is
positive. I have profit. Right. I calculate
the tax on it. And I paid before the year ends and then I’ll file, I’ll
file it as other income. And then, in cryptocurrency
like other income that cryptocurrency and then you know I file it that way.
If I generally I don’t keep assets, I make sure that 31st
March is just my way of doing that I sell off everything, at least on the
books, so I get money for it. But if I keep. If I keep any asset for me I
consider it as my free asset so for me, it’s like whenever I sell it, it’s 100%
profit.
At the end of the in
the next year. Right. Because whatever profit I’ve made I’ve calculated. Yeah,
I find it very easy. I’ve been told that it’s very, it’s not friendly, but I
find it very easy. What do you think about it,I think, essentially what you’re
doing is you square off a trade at the end of each financial year, and then you
start new blades. Each era. What happens, in this case, is one, you will always
be subject to your maximum tax lap.
Because say you are an investor right now if I would have
held for more than three years, I would be taxed
at a reduced tax level of 20%, but within three years if I’m an investor
short term capital gains tax or your existing backdrop to the rich guy you’re
getting taxed.
You know all your incomes will get clubbed and be taxed at the maximum rate. So, that
is the downside of you, not holding on, you know, for a longer period. The
upside is that because you squared our trades off and you pay taxes, you know, each year, the fluctuations in values of
assets your on your gets easily accounted for and in your case, you will ever
have trouble saying you know I paid tax
on Bitcoin and it was $20,000 but now it’s fallen to $12,000, that sort of the volatility that you have to account for on a year on your basis, you definitely
get away with that because on 31st
March, no matter what the price
you book your profits and then you require it. The beginning of the next year.
Yeah, that, that, that is a wonderful analogy that I, if I
was holding for three years. I could have saved
tax or buy or you know I would have liked to be affixed long term capital
Yeah. That brings me to another point where most of our users are very new and
started seeing profits this year, and they are also cashing out in this
financial year. Right, so the aspect of long term capital gain is very low, the
exposure is very low for them like these are all short-term capital gainers.
So for them, would you suggest that you know they should
just calculate what has come into their bank account in INR form. And if they
don’t know if they don’t have a tab of every asset bought at what price.
Whatever has come into the INR bank account, that’s their profit
or loss, mostly profit that’s their profit, and whatever assets they’re holding, they just make a note of it but
they are now considered to be held at
zero price. So whenever they sell it, that becomes like.
WHAT
IS TAXABLE EVENT WITH EXAMPLE
Question
– Okay,
sure. So, as long as short-term capital
gains are concerned, whenever you sell. Now let’s talk about a taxable event first right what is a taxable event.
Answers
–
Whenever you sell or you transfer an asset now. For example, I acquired an asset at 100 rupees. And now, either
I sell it.
Now when I talk about
selling it. I do not necessarily sell it in INR IMS or a direction I go to a car
dealer and I find that he’s willing to accept Bitcoin for a car right that will also constitute a sale. It’s
not only that when you’re bringing any holding into INR is the taxable event, the
income tax and does not at all say that sale means transfers if
they would have said that, then the barter system in India would have been completely exempt from tax right that was never the.
That was never the intent, the income tax access all incomes are taxable or taxable event being
whenever you sell or whenever you transfer, you know, any asset that you
have.
Now for the short, short term capital, you know, duration
investors, whenever they sell, they have to just see what was the cost of
acquisition, What was the sale price and
the difference is taxed. If there are any assets. Beyond that, then, you
know, they have to see whether they have any costs associated with that asset or not if they have assumed and
used all of their costs towards the sales that they have shown in a particular
year, then the next year.
Whatever asset holdings they have will be sold at 100%, as
you mentioned, there will be no cost basis for it.
Question
– Well,
okay, we are getting a bit complicated, so let me just simplify it for people.
If you bought a gift card with the Bitcoin
that you are holding. If you bought
that Bitcoin for 1000 rupees. And you
bought a gift card of 4000 rupees, with the same amount of Bitcoin. That means
you made 3000 rupees profit. I understand that you did not cash out in INR. But
you made a 3000 rupees profit, so you have to pay tax on 3000 rupees. Is that
right?
Answer
– absolutely.
That that is exactly what I was trying to say that it is, it is not necessary
that income is only generated when you have INR in your hands. Income is generated when you have booked a
profit, the income tax law also does
not say that INR is the basis of
calculating your income, it says that whenever you whenever, whenever you
have any income. Now any income or could mean, you know, 1000 rupees worth of Bitcoin now having translated into a 4000 rupee
worth offer. That in itself is an income, and that gets taxed as well.
Question
–
The second thing, let’s a little bit
move out of the trading segment and go to where people make money in cryptocurrency. In fact, I do as well. Some of the
companies we work with, they prefer to
pay in cryptocurrencies.
Question
– How
do we calculate tax on that, what
happens, the second part of the question
what happens if I don’t sell that asset,
Answer
– If I got paid in Bitcoin I did not sell it. What happens then this
is the most common thing, I assume you know most of the software developers or service providers, which are involved with the
digital asset space, have at some point definitely either been offered, or
have received crypto assets as a
form of payment.
Here it is very crucial to first point out, there are two different activities that you have
done, you provided a service, and for this service, you receive payment right,
that in itself is a service income
that you have to book, at the time of receipt and pay taxes during the financial year you have received it.
Even if you intend to hold on to it because you believe in
the underlying asset you know that it is going to appreciate in value, you
need to make sure that you first book that income, you pay tax on it, and then you start treating it as an investment.
That is the fine line that I think a lot of people get
confused with as soon as they get the income they start using it as an
investment and The problem occurs where now you have confused your service
income which is an investment right now when you go ahead and liquidate your
investment, how are you going to show it.
Are you going to show it as investment liquidation or are you going to show such a huge amount
as service income coming in now, one that is going to be difficult for you to
justify.
Second, you
have, you did not book income in the correct year in which you received it,
it’s going to be problematic.
Third, if
you have such a huge investment, which you are liquidating, there had to be a
cost basis of acquiring that investment. Because you did not book it in that year you did not pay your taxes. You
never actually created that asset in your books, and because of these three
things, it gets immensely complicated, I, I urge everybody to book incomes in
the year they receive their payments, even if it isn’t crypto pay taxes, then treat that as an investment ticket for as many years as you want, liquidated in
which, whenever you are comfortable, and then pay tax.
As for liquidation of investment, I wish I have so many
users who do this thing they get paid
in return because they are doing community management and all that. Andthen they don’t cash out, and they keep telling them, I keep arguing with me
okay, but I have not cashed out Why
should I pay taxes now, I keep telling them?
Okay, guys, it’s your income, even if I pay you in gold. It’s still the same rules. If I pay you in
dollars it’s the same rule if I pay
you in INR is the same rules, you got paid. And while on this
subject, most of these people don’t actually give invoices also to their
clients, right, because this is like a salary sort of an income, and an official, right.
Question
– So,
how do we deal with that is it mandatory
to have like you know like a company or like an A have to be able to give you
know invoices and all that stuff.
Answer
–
Not necessarily. So a company is incorporated for very specific reasons. If you
want to limit your liability if you have multiple people, you know, working on
the same venture you need to set up a company, if you’re just an individual
who’s providing certain services to say XYZ, you can definitely just operate as
an individual or, you know, as we call it a technical term sole provider. And
as far as billing is concerned. It’s important to have proper documentation in
place, because if something were to someone were to ask you either from the tax
department or the Enforcement Directorate or the RBI Where did this money come in from, you can always go back and
say I received it for services provided to x y and Zed, but the first thing
they’re going to ask you is for an invoice.
This is for your own comfort for your own sanity and for
your own protection that you need to invoice. Each time you can you know you’ve
provided a service and you’ve got a payment. It also helps to show that you
are not you know you’re not basically involved in some shady or illicit
activity where the money is just moving into our account and moving out without any
documentation.
So invoicing, and documentation is what the income tax
department also always understands documents are the language the income tax department uses always have
exchanged reports have bank statements have invoices have as much documentation
as possible. Right.
Question – Amazing that you say
that. I am actually very open about my things right I pay taxes or. I like to take my example because it’s more
relatable. Even with going to instead or sometimes a client, whose job in their
jurisdiction, it is okay to not have an invoice.
Answer
–
Okay. And then it’s not that important, they could just book it as an expense
and it’s fine like they’re not that. So when that happens, I don’t really have
to give them an invoice, I do write them, but someone or two times, it might
have missed right. In that case, what can one do I mean what can one do membership.
If you go to a restaurant, even if you walk into a
McDonald’s, even if you care about an invoice they will always print out print
money and say, if you don’t get an invoice Your food is free. It is so
important for them to be generating an invoice because they need to maintain a
record of each Penny they own right, but just in case with you, even if your a client wants to tear and shred that invoice you still need to have it for your
own records, ensure that whatever income you’ve generated, you have the amount
written, you have the recipient’s details written you have your bank details
written.
This is how that entire trade will be established that you
provided a certain service you sent the invoice, the invoice was accepted and
then the payment was released into your bank account that entire trade is what
proves that you are a legitimate service provider.
Question
–
Amazing. So it’s really important and what would you suggest I mean we are
drifting a little bit from taxation
but what would you suggest to freelancers who’s just giving services out what
kind of invoice they write and how to do
they make one.
Answer
–
So, there is no set invoice of signing format for an invoice as such,
invoices can be generated in any of the templates that you find on Google,
there is no requirement is much you need to make sure that it, United
States the date, it states the nature of services offered it states the name of
your client and it states the bank details in which you want to pay.
As long as you’re covering the basics, no matter in what
format what template, it’s not going to matter, and even if you don’t have a the company you can always invoice in your own name, for example, lawyers, lawyers,
a lot of lawyers invoice in their own name right they’ll just say advocate, ABC
advocate XYZ. It’s not necessary that you need a company or any sort of a separate entity, in order to be generating an invoice amazing that actually
clears this for a lot of people who asked me the same thing.
We’ve talked about tax on trading we’ve talked about tax on income.
We’ve talked about tax on you know airdrops and your folk coins and everything.
INCOME
FROM REFERRAL FEES
Now let’s talk about income
from referral fees. Right, because some people get really rich by just
referring to the right kind of people. And then they make that money. So how does
the income on referral fees come?
So I
would say referral fee is of two types one is usually the referral discounts
you get right. If you have referred somebody onto a platform and that platform
starts offering a discount. That is not a referral fee, but you have if you have
gotten certain coins or a certain sort of asset, as a payment or as a
compensation for having referred somebody that definitely is taxable you need
to book it in that year.
Obviously, if it’s like 50,
100 rupees you know it’s a very insignificant amount, but anything which
more than that you need to definitely put in, you know if say you’re a trader
right and you’re trading very heavily on
a particular exchange and, and that the exchange has offered you a special
referral program or something.
Whatever you’re getting out of your referencing you just
added to that certain category of business income that you’re already
disclosing, and you pay taxes accordingly. I think you have to just see what is
the primary activity you’re doing, and all of these smaller incomes
can easily be classified into, you know, that primary activity itself. Right.
The profit as when you sell it right like the amount that
you sell it, because I could have gotten. I don’t know when you get a little,
little, little every day, right. So, then it adds up, and then one day you find
you see that you have like 0.1, ethereum or something, which is, I don’t know 20,000 rupees or something, then you go
10,000 rupees.
Then you go and sell
it right so then that it’s okay right like as long as you do it in one year.
Within that one year before, the 31st of
March. Yeah, you have to keep booking the income during a financial year if you choose to, you know,
club it so that it becomes even a substantial amount or you choose to
you keep looking at, at every interval you’ve generated. Honestly, I’m guessing
it won’t be that big an amount you can do either of them.
Right now I see, there could be a big amount, I’m not, you
might think that there is but this is crypto.
Okay, it goes to these like people who would have probably made like 0.001 or 01 BTC in Digital Income right now
it’s so much money right.
It’s around 50,000
rupees or something, I don’t know. The 30,000
rupees. So that’s, that’s what I’m trying to say that it becomes like 30,000 is insignificant, yes but
somebody would have made three lakhs.
Also, if somebody can make 330 1000 somebody could have made
three lakhs also Right, absolutely. So let’s keep this at the cutoff as the
financial year, you need to close them during that financial year. Okay.
Question
–
Now, we will know how to calculate the tax,
what is the tax that we need to pay,
right, we don’t know how to
calculate it. As such, like you know
the exact amount, but we know at least on crypto how to calculate the profit
right now we know the tax liability more or less.
Answer
– The most important thing is, when do we pay
this tax because a lot of people think that they have to pay tax after filing an income tax return,
which is not true.
But even then, there are certain deadlines right in the year
were, where you have to pay a certain amount. So, what is that? Sure. So what
you’re referring damages to advanced tax.
Basically
what happens as the income tax department wants that taxes are paid to them
throughout the year right, they don’t want like a lot of money coming in
between April and July, which is the tax filing season.
They want to ensure that they’re that income stream is also
steady, so that they can keep deploying funds for the benefit of the citizens, you know, as you may say so. Having said
that, what they have defined are four
quarters within which you need to estimate your income and then pay taxes
accordingly.
Let’s take an example
that you estimate that on first April at
the beginning of a financial year, you are going to earn 100 rupees during the entire financial year.
Now I want to clarify here that this 100 rupee is. Apart from any salary
income that you have, or apart from any income on which TDS has already been cut, right, because any income on which TDs is already deducted has already gone
and sat in the books of the department, any or all of the other incomes on
which TDs are not applicable.
You have to estimate during an entire financial year,
and then break it up. So, into one say 25%
of that income is what you expect to generate, so by 15th June, you need to pay
taxes as per that 25%, then accordingly in q2 which is 15 September, you
need to pay taxes on the balance 25%,
the second installment. q3 is 15, December,
where you have to pay your third
installment and q4 ends on 15th
March, where, you know, you will obviously have a very good idea of what
incomes you have generated throughout the year.
And then you basically are just you know whether there is,
whether you have paid more or paid less, and you pay taxes on 15th March. Now, even if in case there is some tax liability that has been generated between 15th March
and the end of the financial year, you can still pay that balance tax in your income tax return, at the time of
filing, if in the case during your entire year you have paid excess tax and your income
was actually lesser, just in case you will receive a refund because you have
paid more advanced tax is basically
a methodology to ensure that the government keeps getting funds at the right
time.
And also that government keeps in check people you know
who’s a who whose income is coming throughout the year, they don’t really pay taxes, you know, at the end of the
year, so it’s actually a very simple and straightforward procedure if in the case you have not complied with advanced
tax procedures.
When you are filing
your income tax return, you will have to pay additional, you know money in the form of two things one is a penalty for not having complied with
advanced tax procedures, and the second
is interest so the government will keep computing. When your advanced tax was due. And since when
you have not been paying it will add a 1%
interest per month, and it will get added to, you know, whatever was a tax payable that is paid,
I just paid a penalty of 15,000 rupees for the last year I
know it was crazy. See that said that sets the right tone. Anyone viewers if
you’re watching, if you made profits in crypto. If your estimated profits in crypto are above the taxable limits calculated and pay the tax
100% of that before March 15.
Okay, and then file
the income tax return next year. be
a little bit extra. In fact, I would suggest
pay a little bit extra, so that you are in the safe zone if you make profits
between March 31 March 15, and March 31 as well.
So, That is very important, you pay tax first, and then you file a return in the next financial year which is called the financial year.
Question
–
Okay, let’s talk about calculating
taxable liability like tax liability, how much tax Do I have to pay. Let’s
describe slabs.
Answer
–
Like let’s talk about salaried business, and just crypto traders, like all three
sections different if I’m a salaried
person. So, actually no matter whether you’re salaried whether you’re a
trader or anything else, your tax lab remains the same right now what I mean to
say that if I’m salaried, then I just take crypto
as the income right and I have to calculate
on top of that.
But if I have just for me. I have, I get the leeway of, you
know, calculating it from top right from zero to do like 50,000, no tax, but if I’m salaried. Let’s do it this way, in our
total income has to be seen whether it includes your salary. It includes your crypto trading it includes interest
income from banks, any other service you’re adding on the total income, you
have to pay taxes as per your tax law
and other tax law could be zero to 250 which is exam 250 to five which is 10%,
and you know five to 10 or whatever it is applicable on the total income.
The only difference being here that if you have made any
long term capital gains. Right. Those will get taxed separately at a specific tax rate which is 20%. All other
incomes just get plugged into your total income, and then you have to apply
that financial years tax and see
where you know where your income is sitting and which, according to which tax law you have to pay taxes. Got it. Okay, how does one go about calculating is is
there a calculator available on the site or somewhere income tax site. Oh,
yeah, sure, I mean there are multiple
calculators available, I’ll send you the link or something maybe you can
leave it in the description.
So, you can calculate
your tax liability. Be generous about it. When you file the IDR and if you
have paid in advance takes extra days you will get it back and you will also get
interested from the government for that.
Okay, so it’s not like you’re wasting your money. They are
their savings actually if you’ll be higher tax and savings at 1% per month. Okay. I traded in
multiple exchanges. And as I said, and most of these people do, and they do
leveraged trading and all those things as well. So they take maybe they take
like you know half a Bitcoin with
them to international exchange and come back with, like, one bitcoin, right.
So, what do they
have, do they have to do, like, what
can they do, or what are they missing out on. So, as long as you’re trading
again we’ll go back to our basics that this is business income and you need to pay in taxes as per like you know,
commercial activity or like trading, a trader.
As far as trading on whether an international exchange or an Indian exchange is concerned, from a tax
perspective whatever profits you make
you have to pay taxes on the only recommendation here is to ensure that you
download your reports, you know every, say, maybe two weeks every four weeks
every two months. A lot of times, exchanges
go bust exchanges go down, or you’re unable to download reports because you
know, there’s just too much volume and you know the exchange is unable to
handle the load.
So make sure that you keep having proper records, timely
records of the transactions you’re making, even say three years down the line
if an income tax officer calls you
to his room tries to understand your trades document again the documentation is the only language they will understand, and there, no matter how much you try and
explain about, you know, I did this I did that you need to show some proof.
Obviously, it is a different situation if the exchange has gone bust exchange
has shut operations and you no longer have reported, you can work on a best
guess or a best estimate basis. But apart from that, if you’re not downloading
reports right now, you’re only making it difficult for you know, two or three
years older yourself, who would not have access to that information and if if
at any stage, you know somebody starts asking questions. You’re going to be
struggling at that stage.
Now, This is something that I learned as a kid. Okay, not
all of them are in a privileged situation where they get exposure to such
information. I learned as a kid that you should always have a balance sheet.
You should always have a book of accounts, even though you are not a company.
Even if your income is just a salary, but you should have a book of accounts,
where every single transaction in your bank is properly logged, and there is a
corresponding, you know explanation to each and every transaction or a matching
invoice or something.
Most of
the people don’t do this in India, So, how important it is to maintain books. And if somebody wants
to start, how they can get started with it. It is very important to maintain books, but at the same time
let me clarify here that you know the obligation does not flow from the
law.
Obviously if you are a business income or you’re doing a
commercial activity you have to maintain your books you have to maintain a
profit and loss account you have to maintain a balance sheet. And then, that is
the basis on which you compute your taxes,
your profits and then you pay taxes,
as far as you are in, say, a salaried individual, you may not necessarily need
to maintain a balance sheet. But it’s always good to have an idea of what your
assets are against which you know what your liabilities are. It also gives you
your, your you know your solvency position, which is which, you know, are you
solving, are you insolvent how many liabilities.
Do you need to repay using how many assets you have, again, as long as you are doing a commercial
activity or a business it, the requirement flows from law? Apart from that, it
is just. It is, it is a very safe and very conservative position to have a
balance sheet in place, just because if anybody were to ask you about your
investments or or anything else you have those balances and you can disclose it
accordingly. Interesting. And I want to tell the viewers.
Okay, you guys are new
in crypto there are multiple streams of income we are getting into a gig economy right there are multiple
streams of income for everybody. People get salaries at reference. You know
this extra paid for the writing articles and all that. It’s better to have
a balance sheet.
It’s better to hire an accountant, and you know, having
maintained the entire statement of your bank. That’s just good practice. Okay,
just start doing it because tomorrow when some income taxman comes to you and
ask that I want transactions from 2019
and 2020 or 2023. Right. You just
show one sheet of paper and say look, we have everything locked here, right in
this balance sheet.
Okay. And finally, if I have Bitcoin. Right. I have sold it on was Eric’s Corbett bns or
whatever Indian he then sold it for INR. So, now I enter in the exchange, most
of these people believe that either don’t take the INR in the bank. I don’t have to pay tax for it. What do you think,
just going back to our previous decision image. As long as, as long as you’re
booking income, it is taxable now whether you’re booking it and keeping it in
INR or you’re booking it and keeping it in any other format right the
government or the income tax law
does not talk about INR sitting in your bank, because if they were ever to make
such a specific mention the Indians will figure out 100 different ways of not
getting their incomes to hit their bank accounts and everything would be exempt
right.
As long as you made profits, even if it’s sitting in your
Xerox account. One, it is definitely something that you need to pay tax on if
there is a profit, and two, if ever, an Indian exchange where to provide
information to the taxman, which is the case which happened in early 2018 that income tax department asks
us for information from the servers of multiple exchanges, this information
does flow out, and at that stage, if you are found out to have had an income which
you did not disclose and pay taxes
on, you will not only, you know, obviously have to pay the tax then you will have to pay penalties and you will also
have to face penal consequences for concealment of income.
Okay, that’s scary. People did a lot of peer to peer
transactions also. Right. They also follow the same principle right you bought
an asset, and then you gave them money, but people did peer to peer
transactions of iron or to iron. Is it a taxable event? If I just support
someone deposit I enter and I get my I enter in my bank or the other way
around.
So, Tax actually it’s imposed on income right but if you’re
just doing an IRA. How are you making any money off or do you have a
brokerage or a commission you make off of that transaction. Well, not in all
cases, mostly none, actually. But yeah, but this was a facility to sort of you
know, evade the RBI restrictions that we build it right people used at any
stage when you have an issue, without commenting on the nature of these
transactions that you are getting into.
Very simply, as long as there is an income you need to pay tax I would assume that
this is like a facilitative transaction or something where you are ensuring
that somebody has a facility which you could have provided me in the form of
brokerage or commission or anything else, whatever be the nature of that
income, that would definitely be taxable in your hands.
Amazing. Okay, so I think we have covered a broad spectrum
of everything we’ve covered, you know people are asking questions about b2b transactions we’ve covered that we’ve covered trading we’ve covered income
from income as in payment in cryptocurrencies right we’ve covered airdrops
we’ve covered resident income, we’ve covered how much tax we should pay there
are tax calculators.
We’ve
covered how to we’ve not covered how to pay taxes. There
are many tutorials as you said on the incometax department site and if there is a demand for it. I’ll also make one,
we’ve covered. Okay. Very important before we come to the conclusion.
Everybody who’s
making money in cryptocurrencies. If you have made more money, then outside your tax, you know, tax lab. I think zero to 2 lakh 50,000 rupees is where you don’t have to pay any tax.
If you have made more money than 2 lakh 50,000, calculate your tax paid before March 15. It’d be
really advanced as before March 15.
And if you, if you are not liable to be you know taxed.
It’s okay if you don’t do anything about it and if you even
don’t file an income tax return, but
I recommend from the experiences of other people that it’s better to file an income tax return, even if your income is not taxable.
What do you think, I
mean, if you are if you win, they will say 10 -15,000 rupees. There is no point
getting into the entire headache of, you know, filing or filling out a return
for filing taxes.
If you do feel that there are certain incomes that you would
like for the government to be aware of because you just want to be on the safe
side. Some people sometimes people feel that you know they’re into crypto, and even if they have not made
enough money they just want the government to know that you know, even if they
made say 10,000 rupees, the government should be aware that such a game was
made, because they want to show how compliant they are, you can file a return,
but the law says, at any stage.
You have to file an income
tax return only if your income exceeds the basic threshold, as you mentioned, which is about 250. Amazing. and
there’s one more question, I remember.
Question
– There are so many people in my group who borrowed money from their parents,
and they traded with it. What do they do? How do they show this as an income or
how do they book it, am I actually personally myself?
Answer
–
So, As far as the trading profits or concern. I think we’ve already addressed
that that you know it just it’s supposed to be disclosed as business income and
pay taxes accordingly. As far as the
initial transaction of getting money from your parents is concerned.
Now, one aspect is that you could have borrowed their money
within intend to be repaid. In that case, you don’t want to, whenever you
whenever you’ve generated enough profits, you start repaying that you know if
it’s a significant amount of money you can even draft like a simple loan
agreement between your parents and sort of have that, you know, repayment
schedules in place and you know keep documenting the repayments otherwise very
simply, how the new tax is structured, is that any payment coming from your
blood relatives especially your parents to a son is exempt from taxes, no
matter how many transactions you have between yourself and your parents they
can be shown as gifts and there will never be any tax liability right between
the two each other, even if I give them an absolute about as far as leaving
lineal ascendance lineal descendants.
Your brother sister, your spouse, your parents, brothers,
sisters, and your children, everybody gets covered the definition. I think we
can keep putting the definition of relative as per the act in your comments
right. And what about a friend, like, I know you are not good at trading, you
gave me five lakh rupees, very bad trade on your behalf.
If I have given you five lakh rupees. The only two ways,
could we have gifted you that money, which would put a tax liability on you those five lakhs are taxable in your hands,
you will have pre-tax and only then
start reading on it, or we can have a loan agreement in place.
You know, I’ve given you a loan. You will repay the loan,
after a certain period of time. It’s important to note here that because you
and I am not related, you will have, I will have to charge you interest on
that loan at market rate, because even if I don’t, the tax officer will say
that you were supposed to have a certain interest income because you gave a loan,
and because you don’t have it, I’m going to increase your income by that extent
and tax the interest income, even if you did not receive it, that’s, that’s
fantastic because this is a because people do that, I know people do that
right. This is a very important point. Yeah, go ahead. Sorry, and whenever you
get into a commercial agreement with someone who is not a relative, the commercial agreement has to be priced at market terms, which basically means
that if I give you a loan image, and as long as much as I would love to have
you as my relative.
I will have to put an interest charge on that agreement, and
that interest has to be at the market rate it can be whatever instead of interest,
it’s like, but I made you profits, let’s say you gave me five lakhs I gave you
six lakhs back.
So then, a certain amount of those profits have to, have to
be attributed towards interest payments on that loan, because it has to visibly say that you got interested on top of this at market rates. Yes, yes,
absolutely. But that’s a lot to learn. Actually, this Thank you so much. I don’t
take people’s money just in case anybody’s watching, but you do transactions
of like 50,000 or so, here and there right but I don’t think that’s that much
amount is a problem because it’s like five-six days, you give someone a loan
and you take it back but that’s not. But if you are trading for someone or if
you’re taking someone’s money, you need to, you know, pay interest on that and
that someone needs to book it. Yeah, one other important thing about it. I think
I’ve spoken for a long but it’s very comprehensive one another important thing that
I want to tell people is when you take money
from someone, or when you give money to someone, you might forget.
But if you are maintaining
a balance sheet. Right. You never forget. I actually have a friend,
something some money like a little amount of money. I forgot for an entire year
and a half. When I started writing the accounts for it, I realized okay should I
have given him money right so I just want to tell people like it’s so much
better if you write to maintain your books.
Okay, invest a little bit of time and money into it. Try and
you know maintaining your accounts, it’s a very good practice.
I think we’ve clarified everything but if people have any
doubts please leave it in the comments, and we will answer them. the journey of
taxation. Nobody likes to pay tax, but we should pay tax, it’s for the betterment of the country as well as for our own
safety and security.
So please pay your taxes, everybody, if you
have, you know, sort of problems if you still can’t figure it out or if you have too much money and you don’t know what to do with it.
I know,
is the guy actually to reach out to also for your cryptocurrency-related tax
taxation and please do reach out to him if you need it if the need be. But if it’s small amounts smaller amounts
try to do it yourself you’ll get to learn a lot in the process. Okay, like,
a lot of it and it’s beneficial
knowledge, trust me.
There
are a lot of reasons why the government would like to ban crypto because you know it causes financial
capital flight it appears there is money laundering or terrorism financing
aspects involved as well.
Please pay your
taxes, please do not give the government another reason why they would feel
that you know this is a parallel economy or something, which is out of their
control be, you know, be a citizen to look up to encourage your friends or
encourage whoever else you know who’s in this space as well, that there’s
absolutely no way that crypto is exempt,
just because the government has not clarified.
You know any position on it, the Tax Act is very very simple
all incomes are taxable follow that and ensure that you know you’re just
complying with the law, and you’re upholding, you know a good standard and
ensuring that crypto becomes a very
next class.
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