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How should income from cryptocurrency be taxed as capital gains? 

New Delhi: In India, cryptocurrency is not a valid currency or a legal tender in the conventional sense, which means that you cannot pay with cryptocurrency to buy and sell anything in India. Due to this, there is currently no rules or regulation on the taxation of the income earned from cryptocurrencies. But despite this fact, many Indians have, of late, invested in the new age asset class and have earned handsome returns from the asset class because of the rise in Bitcoin and altcoins.

With investors earning attractive returns from this asset class, there were calls for taxing the income generated from cryptocurrency investments. Several tax experts since then have suggested that people should declare their income from cryptocurrency under the head of "capital gains". But how should the capital gains tax on crypto trading be calculated? This created confusion among taxpayers. Let us take an example and understand how this income will be taxed as capital gains.

Tax experts say, if a cryptocurrency is held as a capital asset, then the profit or loss from it should be reported as capital gains or loss. If this asset is held for more than 36 months then the gains/losses should be classified as long-term capital gains or losses and if sold before three years, then the gains/losses will be treated as short-term capital gains or losses.

In the first case (long term capital gains), gains will be taxed at 20% and on top of that there will be applicable surcharge and cess and in the second case(short-term capital gains), gains will be taxed as per the income tax slab of the taxpayer.

Suppose, you have bought Bitcoins worth Rs 1 lakh on May 1, 2019 and sold them for Rs 1.5 lakh on January 5, 2021. Here, the holding period is less than 36 months, so the gains will be treated as short-term capital gains. So the gains of Rs 50,000 will be added to your taxable income and will be taxed as per your tax slab.

In the above example, if you would have bought the Bitcoin prior to January 5, 2018, then the gains would have been treated as long-term capital gains, and would have been taxed at 20% with indexation benefit. Indexation is a process to adjust buying price of an asset to factor inflation.

Worth mentioning here is that if you have invested in any cryptocurrencies then you must disclose that in your income tax return otherwise there could be penal consequences later on when you sell that asset and realise some gains.

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How should income from cryptocurrency be taxed as capital gains? - Times Now