The past week was a bit crazy as I spent over 5 days with my auditor filing my returns. But here’s the thing-cryptocurrency taxation in India is tricky. Especially if you are in this space full-time and want to scale your business, account all your income and expenditure appropriately.

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The fact is that there is no legislation or accounting rules that are clearly defined for the sole purpose of taxing any cryptocurrency derived income.

What complicates matters further is the fact that the IT department doesn’t care how your income is derived, they just care about taxing it. Some auditors feel you need to pay 30% tax, avoid issues with the taxman and call it a day.

Auditing accounts and classification of income earned from this space in India requires a strong grasp of the law as well as common sense. If you plan on doing any serious business in this space you need to be prepared for transacting volumes in the hundreds every month.

However, lack of legislation leaves room for ambiguity.

Lack of direction from as well as lack of consensus within the ICAI ensures there is no accounting policy to work with. One needs to interpret existing accounting laws that don’t necessarily apply themselves accurately to incomes derived from sale/purchase of cryptocurrency or any income earned by way of payment in cryptocurrency.

Last year I wrote an article for The Quint which will help with some guidelines on filing your returns for any income derived from cryptocurrency. However, practical application requires some lateral thinking as well.

The reluctance of government agencies to work towards a singular goal of regulating this space until it there was no option but to do it defies all logic. Does it not? But, it would be wishful thinking to assume this because that’s just how our government likes to go about it’s business.

It leaves small investors such as most of us at the mercy of the taxman with a knife to our throat. It seems as though most have forgotten the witch hunts of the past year towards HNWIs and exchanges dealing in cryptocurrencies.

People working for exchanges have dealt with innumerable threats from government agencies in the past. HNWIs were ordered to reveal everything but just short of the private keys to their storage accounts. It’s hilarious the government would go to this extent but then again it’s also scary that they will go to any extent to extort you of your rightful income.

However, those of us closely involved in this space and trying to make a living will never forget the incompetence, double standards and mediocrity of all the agencies involved in crucial decision making of financial decisions that have stifled the growth an entirely new sector that could add to the growth of our economy, as well as the livelihood of many.

There are many vested parties in the country who will benefit by the growth in this sector. But without strong moves we’re likely to see other economies scale to meet the demands.

It cannot be stressed that our government needs to embrace cryptocurrency as much as they have embraced blockchain technology.

Legalisation and regulation, combined with clear rules for taxation will allow for a steady growth of this space in India without the need for anyone to take a hair cut.

But the one thing our government and its agencies have done extremely well in the past 2 years is create FUD and confusion. But it won’t last forever…

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