The government has sought the views of tax experts on disclosure and taxation guidelines for companies and family offices that hold cryptocurrencies. Companies currently have to disclose any holdings or dealings in cryptocurrencies or crypto assets in their filings with the Registrar of Companies (RoC).
What Are Cryptocurrency?
Cryptocurrency is a digital payment maintained by a network of computers that uses cryptography to authenticate transactions. Depending on how investors expect to make money and how they are structured, some cryptocurrencies may count as securities
Who Are Roc-Registrar Of Companies?
The Registrar of Companies (ROC ) is an office under the Ministry of Corporate Affairs (MCA), which is the body that deals with the administration of companies and Limited Liability Partnerships (LLPs) in India. At present, Registrar of Companies (ROCs) are operating in all the major states/UT’s.
Tax Experts Opinion
Most firms that maintain cryptocurrency on their books are providing them as earnings (primarily, enterprise earnings), however as a result of there isn’t a readability on taxation, it’s tough to compute precise earnings and the way to deal with them, tax experts stated.
There are already regulations around holding cryptocurrency on companies’ or family offices’ books, and it only makes sense to have a regulation around disclosure and taxation. Many early investors have made substantial gains in cryptocurrencies, and they may also benefit if the government comes up with a framework on whether this will be long-term or short-term capital gain
Losses from the funding or buying and selling are unlikely to be allowed to set off towards common earnings as these are “speculative transactions”. Tax experts identified that firms are reporting and making use of tax on their returns from cryptocurrencies in another way on account of regulatory confusion.
Governments Plans For Cryptocurrency
- The government is mulling changes in the income tax laws to bring cryptocurrencies under the tax net, with some changes that could form part of the budget. The RBI has repeatedly reiterated its strong views against cryptocurrencies saying they pose serious threats to the macroeconomic and financial stability of the country and also doubted the number of investors trading on them as well as their claimed market value.
- The RBI had announced its intent to come out with an official digital currency, in the face of proliferation of cryptocurrencies like Bitcoin about which the central bank has many concerns. Private digital currencies/virtual currencies/crypto currencies have gained popularity in the past one decade or so. Here, regulators and governments have been skeptical about these currencies and are apprehensive about the associated risks. The bill treats cryptocurrencies as a commodity and proposes to segregate virtual currencies on a use-case basis
- Also, previous reports noted that the government is planning to implement 1 percent GST on cryptocurrency exchanges, which will be collected at source, and aiming to hand the regulatory onus of this space to SEBI. A possible classification of cryptocurrency exchanges could involve three categories: facilitators; brokerages, which connect buyers and sellers; and trading platforms, majorly electronic in nature, providing market monitoring and trading software infrastructure to participants.
- Given that any payment, irrespective of it being made in crypto, is an income in the hands of the receiver, the investors will be required to calculate, in fiat terms, the returns made on their crypto asset, and pay taxes accordingly. Once this is done, the investor can proceed to transact in crypto assets with the taxed funds again.
• If Classified Under Capital Gains :
If the crypto-transactions are classified as ‘investments’, they will be considered capital gains or losses under the head ‘capital gain’. If the sale value of the transaction is more than the cost, it will be regarded as ‘capital gain’, and if the price is higher than the sale value, it will be considered ‘capital losses’.
• In Case Of Capital Losses :
There is no directive from the income tax authorities regarding the treatment of capital losses. However, if your sale transaction has resulted in a loss, we suggest you consult an expert.
• If Classified As Business Income :
If crypto transactions are reported as business income, the implication of Goods and Services Tax (GST law) also needs to be examined. All the direct and indirect expenses will be allowed as deductions from the profits on the sale of the crypto assets. The profits will be added to the other income and taxed as per the income tax slab rates.
• GST Angle If Treated As Business Income :
The Central Economic Intelligence Bureau (CEIB) has proposed categorizing cryptocurrencies as intangible assets and applying GST on all the crypto transactions. Since the government has not yet defined its taxability and the proposal is under discussion, a general rate of 18% may likely become applicable going forward.
• If Classified As Other Sources Of Income :
Crypto-assets can also be reported as ‘income from other sources’ while filing ITR and taxed accordingly. Income from other sources is also added to the total income and taxable as per the applicable tax slab of the taxpayer. Also, there are views to treat the income from crypto assets as ‘speculation business income’ and taxed as per the highest tax slab. However, till any clarification is received from the income tax department, the taxpayers can benefit from classifying it as capital gains or ordinary business income.
Tax Clarifications Awaited.
Since the cryptocurrency is not yet legalised by the Reserve Bank of India (RBI), it cannot escape from taxability. An investor earning profits from the sale of cryptocurrency must pay income tax. All incomes, except exempted explicitly by the Income Tax Act, are subject to tax. Till we receive any clarification from the income tax department, investors must pay income tax on the crypto transactions based on the nature of the transactions.
