The digital currency can be a, payment system, or legal tender under certain conditions. They are able to be used in new ways regularly, and they’re constantly evolving. They are not centralized and aren’t governed or controlled by any government agency. Cryptocurrencies, which are an asset class that is volatile and has several components that remain largely unresolved they are among the most volatile. India’s interest has soared in the market for cryptocurrency this year. A variety of cryptocurrency startup and exchange companies have entered the market – get the facts!
Because of the absence of a law, standard brokerages in India aren’t able to offer this service. Register with these exchanges and then complete your KYC to begin trading tokens.
Are you sure that cryptocurrency is a ‘currency’ or an ‘asset’?
Tax experts are debating whether the cryptocurrency market should be classified as an asset’ or ‘as a currency’. asset’. The terms cryptocurrency and crypto are commonly used interchangeably.
However, to classify it as a ‘currency’ requires government legal support; in the absence of this it is safe to define it as an asset or property.’
Because tax implications would be a matter of law so naming them “assets” could be the better option than waiting for an explanation from the government.
Because tax implications will occur regardless of their legality, it would be better to classify them as “assets” instead of having to just wait for a response by the government.
The US government also released a press release describing it as “property,” implying capital gains taxes would be assessed on profits earned from the trading of cryptocurrency.
Why is it that crypto gains should be taxed?
At each stage of the development of the internet legislation and regulatory bodies have been lagging behind the technological advances. In India laws are slowly changing to allow the retail investor to be a part of cryptocurrency and for banks to deposit money into the market for crypto.
The Reserve Bank of India (RBI) has indicated that the trading of digital currencies is legal, but warned investors of the risks.
How do you prepare and submit the crypto tax?
You can never be too late to prepare your tax returns for crypto. The regular Form 1040 tax return is now accompanied by a question on whether you’ve made use of virtual money during the year. If you answered yes, bear the following points in your mind:
1. Maintain detailed track of transactions
Keep track of your cryptocurrency transactions. This includes how much money you paid for it and the amount of time you kept it in your possession or how much it was worth. You can also get invoices for every transaction.
If you own crypto, your crypto exchange may provide you with a 1099B but it might not include your cost basis, or the price you initially paid for the cryptocurrency.
2. Complete the required tax forms
After keeping a record of every cryptocurrency exchange then you’ll have to complete tax forms specific to how you used your crypto.
* 8949 is the form to use. This form records every transaction you conduct to purchase or sell crypto. Include the amount you bought, the price and date at which they were bought, as well as the date and the price when they were sold and the amount of profit or loss you made on each transaction.
* Schedule D is the final one on the list. This form estimates your total capital gains and losses based on all your assets including cryptocurrency.
* Appendix C. If you obtained coins by mining, you need to disclose whether you received them for business purposes or as an entertainment. If you run a cryptocurrency mining company, you may owe self-employment taxes.
3. How do you prepare a tax return
You can connect your online tax software to WazirX in case you use it to track your exchanges. These platforms provide a wide range of accounting tools that can be used for preparing and track both crypto and regular taxes.