Investors urged to take help of a chartered accountant or tax portal to file taxes


Those investing in cryptocurrencies are encouraged to get help from a chartered accountant or a tax portal when submitting their taxes for the financial year.

As Indians begin planning their tax-saving strategies for the last month of the financial year, many may consider buying life insurance policies or investing in mutual funds that can save taxes.

But those who have invested in cryptocurrencies will not be able to save any overall taxes. Since The new taxation regime that was announced in January requires crypto gains to be reported for the first time.

The Finance Act 2022 introduced Section 115BBHThe law states that crypto assets gains are taxed at a flat rate 30 percent. furtherLosses from crypto investments cannot be adjusted for gains and losses can not be carried forward to the future.

In fact, an individual would have to pay taxes on gains arising out of the sale of one transaction of, let’s say, bitcoin, even if another transfer/sale of bitcoin had resulted in an equal or higher loss.
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While An assessee can only subtract the acquisition cost when computing the income from sale or transfer virtual digital assets (VDAs), or crypto assets.

We Take a look at the tax provisions that apply to cryptos and if there is a way to lower the tax burden.

Calculating Taxes

In The case of securities in demat form is a principle known as FIFO (Financial Independence for Overseas Investors)First-In-First-OutTo calculate capital gains, ) is used.

According Experts suggest that the FIFO method be used to calculate capital gains for all cryptocurrency transactions.

This Method follows the principle that assets bought first are sold first and assets purchased last are sold later. For Let’s take, for example, the one-cent ethereum coin you purchased. July 2021. Then, I bought two more ethereum coin in August. If Two ethereum coins are to be sold in your plan SeptemberThe FIFO method would take the first coin that you have bought into account. July You can then buy one of your coins. August.

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“This method is applicable for all cryptocurrency transactions, including buying, selling, or exchanging one cryptocurrency for another,” Punit Agarwal-Founder KoinX is a platform for crypto taxation.

Reducing Tax Burden

According Experts say it is impossible to correlate the number of VDAs sold and the quantity bought if someone is buying and selling VDAs regularly.

“Section 115BBH does not provide any guidance on how such correlation should be made. Either he can follow the FIFO method or the weighted average method to compute the cost of acquisition of a VDA sold,” Naveen Wadhwa, deputy general manager at Taxmann.

In The weighted-average method calculates the cost of purchasing the VDAs. It is the average weighted price of all his holdings at that time.

“In the absence of guidance in Section 115BBH or similar clarification from the CBDT for the VDAs, the investor might take the position to use either the FIFO method or the weighted average method, whichever is more beneficial,” He concluded.

See Image to see how crypto gains could be calculated using different methods

No Easy Way Out

According To Amit Singhania, partner at Shardul Amarchand Mangaldas & CoSince there is not clarity about which tax method should be used, it is best to conduct a correlation process.

“Suppose investors have sold a particular token, if they can correlate the token with the cost, they should follow this method for tax computation. One-to-one correlation to the extent possible is the right way to compute capital gains,” He stated.

FurtherSome experts think that crypto assets cannot lower the tax burden.

Indy SarkerTaxCryp’s co-founder, John, said: “There is none, because it is on a transaction-by-transaction basis that your tax incidence is captured. If you really think about lowering your crypto taxes, then you trade as often, because the more you trade, you create more opportunity for positive tax, because every transaction in and out is a date-time stamp for capturing tax assessment or tax impact.”

What can crypto investors do?

In Inadequate loss compensation and loss carry Indian Crypto investors must now pay taxes every year. “However, investors can avoid paying additional taxes by accurately calculating their crypto tax liabilities,” said KoinX’s Agarwal.

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Experts The real problem is how serious are people going about filing their taxes this year. FurtherThe government will also tighten its grip on tax compliance, driving it to the forefront.

Given the lack of clarity over certain aspects of crypto taxation, investors are encouraged to get help from a chartered accountant or a tax portal when submitting their taxes for the financial year.

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