While the focus may be on the U.S. of late, cryptocurrency tax issues are becoming a global problem.
India, for example, has responded by sending tax notices to crypto traders and investors after a survey found $3.5 billion in transactions may have been performed by citizens over the past 17 months. The country’s income tax department has even gone so far as to raid exchanges over suspicions that their customers were evading taxes.
In the midst of all this, local startups are proving proactive, offering services that can help crypto users determine what they owe.
One example comes from tax software startup Cleartax, which recently introduced a crypto tax advisory service in partnership with bitcoin wallet Zebpay, a move that echoes those by other global startups like Coinbase (which recently issued its own cryptocurrency tax calculating tool.)
Demand for the product so far has been strong, according to representatives at Cleartax.
“The surge in crypto pricing saw a lot of interest from India,” the representative told CoinDesk. “We started to receive hundreds of queries about tax implications of these transactions.”
And it’s easy to see why. With cryptocurrencies neither legalized nor regulated in the country, taxpayers are struggling to report their crypto profits.
Cleartax continued:
“There is lack of clarity and anxiety, and several views are floating about how gains from [cryptocurrencies] must be reported in tax returns.”
But Nischint Sanghavi, head of exchange at Zebpay, believes the new tool will help resolve concerns.
“ClearTax will make taxation related to cryptocurrencies simpler for people so that they can plan their taxes in a better manner,” Sanghavi said.
Indeed, the advisory service is designed to solve any query related to the taxation on trading and sale of cryptocurrencies, as well as those that might be asked by salaried financial traders and freelancers. Plus, Cleartax has launched certified accountant-assisted tax filing services for investors, helping them report their short- and long-term capital gains from the sale of cryptocurrency.
Answers ahead?
That said, both companies will be limited by India’s ongoing regulatory uncertainty over the technology.
The nation’s central bank, the Reserve Bank of India (RBI), has been repeatedly issuing warnings to users, holders and traders of cryptocurrencies, stating that it has not given any license to any entity or company to operate or deal with bitcoin or any cryptocurrency, potentially putting a damper on tax disclosures.
“[With this], the possibility of any formal details on how to tax and report these remains low,” Archit Gupta, CEO of Cleartax, told CoinDesk.
Yet, bitcoin exchanges in India including Unocoin, Zebpay and CoinSecure are seeking clarifications over tax liabilities for their operations.
Still, Gupta said, even with “no clear directive” from the country’s income tax department on how cryptocurrency holdings must be reported, users, at least, should pursue paying some form of tax on them.
In the absence of such rules, he said, “it would be wiser to report these as ‘income from other sources’ and pay a 30 percent tax on gains from them as opposed to reporting them as capital gains, which would mean these are capital assets.”
And summarizing Gupta’s view, a Cleartax representative concluded:
“While the law is unclear – it is certain that this [cryptocurrency] income must be offered to tax.”
India money image via Shutterstock