How Should Cryptocurrency Income Be Taxed As Capital Gains?How Should Cryptocurrency Income Be Taxed As Capital Gains?

How Should Cryptocurrency Income Be Taxed As Capital Gains?

When the coronavirus pandemic swept through the world, shutting down businesses and other economic activities, there was a certain gloom surrounding the markets. But the rise of cryptocurrency helped push away some of the uncertainty. People moved to invest in this emerging industry and many saw their wealth grow rapidly, even though the crypto world remained largely unpredictable and volatile. Soon, there were calls for taxing the income generated from cryptocurrency investments. There was one problem, however. Cryptocurrency was not a legal tender and hence no regulation or guidelines on how the income would be taxed.

This created confusion among taxpayers. Several financial experts have since discussed the matter and suggested that people should declare their income from cryptocurrency under the capital gains tax head. But how should the capital gains tax on crypto trading be calculated?

If a crypto asset is held as an asset, then the profit or loss from it should be reported as capital gains or loss, the experts say. If the asset is held for more than 36 months then the gains should be classified as long-term capital gains and will be taxed at 20 percent, in addition to the surcharge and cess if applicable. Else it should be classified as short-term capital gains and be taxed under applicable personal taxation rates.

Take for example: You bought some cryptocurrency coins in April 2019 for ₹ 80,000 and sold them for ₹ 1,20,000 in December 2020. Here, the holding period is less than 36 months and hence short-term capital gains taxation rules will apply. You made ₹ 40,000 from selling the asset so that amount will be added to your taxable income and you will be taxed as per your income tax bracket.