Thursday, December 8 2022

The government must also decide whether income from cryptos is treated as business income, whether it should be classified as a speculative or non-speculative transaction.

By Shailesh Kumar

As taxpayers seek tax relief from the government to withstand the stress of the pandemic and increase their disposable income, there are some areas when determining the taxation of new era investment options, greater clarity is required under tax law.

New age investment options, whether in cryptocurrencies or derivatives such as futures and options or gold sovereign bonds, have all caught the attention of millennials and they have look forward to making investments in these instruments, seeing their investments multiply and beating the effects of inflation. . However, greater clarity is required under income tax law, so that investors can be better informed of the tax implications of these transactions and do not have to deal with disputes with tax authorities. later.

Taxation of cryptocurrencies

In the recent past, there was a buzz in the industry that a new law needed to be enacted to regulate crypto. It was also expected that the necessary changes would be made to the income tax provisions and define the categorization of “cryptos” as “fixed asset” or “trading asset” or “currency in the hands of the investor”. However, no such legislative provision has been made so far. As a result, it is unclear whether income/losses from the sale of cryptos should be treated as “capital gains/losses” or “trading profits”?

The government must also decide whether income from cryptos is treated as business income, whether it should be classified as a speculative or non-speculative transaction, as this will have a direct impact on whether crypto losses can be compensated. or not with other business income.

Taxation of futures & options

The CBDT Vide Finance Act, 2013 made an amendment that trading in derivatives should not be considered a speculative transaction. Therefore, losses from derivatives trading could be carried forward for eight years, as opposed to four years in the case of speculative business income. Although the law is amply clear on the head of income for the taxation of income from such derivatives, there is considerable ambiguity among taxpayers regarding the maintenance of the books of accounts in such cases.

Many individual taxpayers invest in futures, options and derivatives, which need clarity on record keeping and audit requirements. This clarity is needed particularly in the case of small traders, who have suffered losses on derivatives, and wish to claim the losses so suffered, but do not want to bear the compliance burden of maintaining books of accounts or have them audited. Given the increase in the number of investors under this mode, we expect the government to propose specific guidelines in this regard.

SGB ​​capital gains

As an alternative to holding gold in physical form, the Sovereign Gold Bond Scheme was introduced by the government. The current provisions of the law exempt capital gains from the redemption of sovereign gold bonds issued by RBI under the Sovereign Gold Bond Scheme, 2015. Although the intention of the law has always been to exempt most -values ​​resulting from the redemption of these gold sovereign bond schemes. However, in order to avoid any future litigation and to remove any ambiguity in the law, appropriate amendments should be made to the law, providing for a capital gains exemption for each issuance of Sovereign Gold Bond Schemes.

The author is partner, Nangia & Co LLP. Contributions from Mayank Khaneja, Senior Partner

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