Crypto asset investors are facing a double whammy – taxes and regulations. In a move that could affect millions of people worldwide, India’s finance minister has raised the possibility of taxing profits earned from cryptocurrencies. “Virtual currencies are not legal tender,” Ms Sitharaman told reporters late Friday. “They are neither money nor coin.” She added that those dealing in cryptocurrency should declare it as income and pay appropriate taxes.
The announcement came just days after the Indian government clarified that cryptocurrencies do not fall under the definition of currency. However, it did say that they are “not illegal”.
Ms Sitharaman also said that the government is considering introducing a regulatory framework for the sector, adding that she wants to ensure that there is no misuse of the technology.
She said that the government is looking into ways to regulate the industry. “We want to make sure there is no misuse of technology…we don’t want to stifle innovation,” she said.
The news comes amid growing concerns about the potential impact of cryptocurrencies on financial stability. Earlier this week, South Korea banned anonymous trading accounts, while Japan, Australia and China have introduced measures to curb speculation.
In the US, the Securities and Exchange Commission (SEC) is investigating Facebook’s plans to launch its own digital currency Libra, following criticism over how it handles personal data.
In Europe, Germany’s central bank warned against using virtual currencies such as bitcoin because they lack regulation.
“There are risks involved with these new technologies,” Ms Sitharaman said. “But we must be open-minded.”
India’s Finance Minister Arun Jaitley had earlier said that the country would not ban or regulate cryptocurrencies, but will instead focus on educating users about their risks.
He said: “I am not saying that we are going to ban them. I am saying that we are not going to regulate them. We are not going to ban them. But what we are doing is that we are trying to educate our citizens about the risks associated with them.”
India is one of the world’s largest markets for Bitcoin, which has been used by criminals to launder money and evade sanctions. The country’s Supreme Court last year ruled that cryptoassets were property, meaning they can be seized if found to be illegally obtained.
Bitcoin was worth $20,000 (£15,500) in December 2017, before falling to around $6,000. It has since recovered to more than $10,000.
A new report claims that the number of global Bitcoin transactions reached an all time high of nearly 1 million per day in November 2018. This figure represents a staggering increase of almost 600% compared to January 2017 when only 790 Bitcoin transactions took place each day.
A new report claims that the total value of Bitcoin transactions hit an all-time high of nearly $1 billion per day in November 2018, according to Coin Dance.
This figure represents a staggering rise of almost 700% compared to January 2017, when only $70 million worth of Bitcoin transactions occurred each day.
The U.S. Internal Revenue Service (IRS) has issued guidance regarding the tax treatment of certain gains realized upon the sale of virtual assets, including cryptocurrencies.
According to IRS Notice 2019-21, virtual assets include “cryptocurrencies such as Bitcoin, Ether, Litecoin, XRP, and others.
The notice states that virtual assets may be treated as capital assets under Section 1231 of the Internal Revenue Code, subject to applicable limitations.
However, the IRS notes that virtual assets do not qualify as ordinary income, dividends, interest, royalties, annuities, passive activity losses, gain from the sale of real estate, or any other type of taxable event.
The IRS also clarified that virtual assets should be reported as long-term capital gains or losses rather than short-term capital gains or loss.
The agency added that virtual asset sales are generally considered completed upon receipt of payment, unless otherwise agreed upon.
As a result, the IRS stated that virtual asset sellers are required to recognize gains or losses on the date of sale.
In addition, the IRS noted that virtual asset buyers are generally required to pay taxes on gains within 45 days after receiving payment. However, the agency did note that there could be exceptions to this rule.
The IRS further explained that virtual asset buyers may be able to defer paying taxes on gains until they sell the virtual asset.
Virtual digital assets have ushered in a new era in taxes. Next, what?
The Finance Ministry has notified the Income Tax department about the tax treatment of virtual currencies such as Bitcoins. The notification says that the income earned from trading in virtual currency is taxable under Section 44AB of the Income Tax Act 1961. This section deals with income from property.
According to the notification, “Virtual currency is intangible asset and hence it cannot be treated like tangible goods.” However, there is no clarity on how the government plans to treat cryptocurrencies.
In December 2017, the Reserve Bank of India had warned people against investing in virtual currencies. As per RBI guidelines, cryptocurrencies are neither legal tender nor backed by any government or central bank.
Cryptocurrency exchanges are not regulated by any authority and there are no laws governing them. Hence, it is difficult to know whether one needs to pay capital gains tax on profits generated from trades.
There is no clarity on whether one needs to pay stamp duty on transactions done over crypto platforms. There is also no clarity on whether cryptocurrencies are considered as securities.
Moreover, there is no clarity if a person holding bitcoins is required to declare it as his/her source of income.
If you hold bitcoin and trade it, you may have to pay tax. If you buy something online with bitcoin, the merchant might charge you sales tax.