Digital assets can be digital, payment system, or legal tender under certain circumstances. They are always evolving and new applications being developed on a daily basis. They are not centralized, and therefore cannot be governed, or controlled by any government agency. Cryptocurrencies are among the most volatile classes of assets with many of the components hidden in silence. This year, the interest of India in cryptocurrency has risen to new heights, with numerous new startups and crypto exchanges entering the crypto market, recommended reading!
In India, digital currencies can be purchased through particular crypto exchanges. traditional brokerages are not yet able to offer this service due insufficient laws. You can sign up with these exchanges, fill out your KYC and start trading in tokens as soon as you can.
What is the difference between a cryptocurrency and an asset?
Tax experts are debating if cryptos should be classified as an asset’ or ‘as a currency’. asset’. The terms cryptocurrency and market are commonly used in conjunction.
In order to identify the currency as such, the government must provide legal backing. If it is not accessible, it’s possible to categorize as a property or asset.
Since the tax implications could take place regardless of legality so naming them “assets” would be the better option than waiting for an explanation from the government.
Because the tax implications would occur regardless of the legality, designating them as “assets” could be a better method than waiting for an explanation from the government.
Furthermore the US government has issued an official statement identifying it as a ‘property,’ implying that capital gains tax are to be charged on the gains in the trading of cryptocurrencies.
Why should crypto gains be taxed?
Through every stage of the growth of the Internet, laws and regulators have lagged behind technology. This is especially true in India which has regulations being reformed to let individuals invest in crypto and banks deposit money to the market for crypto.
The Reserve Bank of India (RBI) has signalled that trading in digital currency is permitted, but has warned investors about the dangers.
How do you prepare and complete your crypto tax?
It is never too early when preparing your tax returns for crypto. In the regular Form 1040, you will be asked if you’ve used virtual currencies during the tax year. If you said yes, keep these points in mind:
1. Keep track of transactions in detail
Keep track of all your cryptocurrency transactions, including what you paid for it, the length of time you held it, and how much you traded it for, along with invoices for each transaction.
While your crypto exchange could send a 1099-B form to both the IRS and the taxpayer, it won’t include the cost basis or the price you paid for your crypto when you have one.
2. Fill out the Tax Forms Required
After keeping a record of every cryptocurrency exchange You’ll need to complete tax forms specific to how you used your crypto.
Use the *8949 form. The form tracks every transaction you perform to purchase or sell cryptocurrency. Include the total amount of coins that you purchased, the cost and date they were bought, as well as the price and date that they were sold, as well as the loss or profit of each transaction.
The final schedule on the list is Schedule D. This form estimates your total capital losses and profits from all of your assets, including cryptocurrency.
* Appendix A. If you’ve earned cryptocurrency mining coins, you will need to state whether they were for your company or as a hobby. If you run a cryptocurrency mining company, you may owe self-employment taxes.
3. How do you complete a tax return
If you use WazirX to track your transactions, you can connect them to the online tax software of your choice. They provide a complete range of accounting services to manage and prepare both your tax returns for normal and crypto transactions to those who are looking for a one-stop-shop.