Investing in cryptocurrencies is the newest and most popular trend in the global financial sector. Governments or other centralized financial organizations do not control these digital currencies. However, the revenue generated by its sale, exchange, or transfer is still subject to government taxation.
When does cryptocurrency become taxed?
To acquire a cryptocurrency, you do not need to pay taxes; they are tax-free on their own. The IRS considers cryptocurrency to be property for tax purposes, which means:
- You must pay taxes on bitcoin if you sell or use it in a transaction.
- Payments made in cryptocurrency for commercial purposes are taxed as business income.
Tax-Related Cryptocurrency Events
The following is a list of tax-related events in India:
Taxable Occurrences
- Converting cryptocurrencies into fiat cash, or government-issued money
- acquiring and paying for goods, services, or assets
- Exchanging one cryptocurrency for another when transacting in cryptocurrencies
- Obtaining coins that were mined or forged
Non-Taxable Occurrences
- Buying cryptocurrency with fiat money
- Making a bitcoin donation to a charity or non-profit organization Gifting bitcoin to a third party (subject to gifting exclusions)
- Exchange of cryptocurrency between wallets
Cryptocurrency Tax Events Examples:
Using cryptocurrency, purchasing anything is easier than ever. To take advantage of this convenience, you must pay sales tax and create a taxable capital gain or loss event at the time of sale which can be calculated with the help of a crypto tax software.
- You send the cryptocurrency to the retailer along with any applicable sales tax via their wallet.
- If the value of your cryptocurrency is higher now than it was when you first purchased it, you have created a taxable event with a realized capital gain. If it is less, you suffer a capital loss. Throughout the tax season, each must be recorded.
- Because the transaction was a taxable event, you must keep track of how much you spent and its fair market value at the time it occurred.
As a result, if the value of your cryptocurrency has increased, you will be taxed on both sales and capital gains while using it.
Cryptocurrency Purchase
Tax consequences will apply to both you and your seller in this transaction.
- The seller is required to declare the transfer of funds as gross income based on the fair market value of Bitcoin at the time of the transaction.
- You must record the transaction as a capital gain because you cashed out an investment to make a purchase. The profit is the difference between the purchase price of bitcoin and its market value.
Earning Money with Cryptocurrency
The cost basis for cryptocurrencies is the total amount you spent in fees and money. If you make a profit, the remaining amount is taxed.
Your taxable gains (or losses) from cryptocurrency are recognised as capital gains or capital losses, just like traditional assets.
Cryptocurrency Exchange
Tax Liability Bitcoin exchanges are also subject to taxation. For example, if you buy one cryptocurrency with another, you are essentially exchanging one for the other. Profits and losses on cryptocurrency exchanges must be reported.
Several exchanges assist cryptocurrency traders in keeping all of this information organized by offering free exports of all trading data. This can be used by the trader or the trader’s tax advisor to calculate the trader’s cryptocurrency tax obligations.
Binocs is a tool that can help you keep the best track of your cryptocurrency investments in accordance with Indian crypto laws, as well as manage your taxes and track your portfolio.
