CA Deepak Rathore
Cryptocurrency is digital money. It is considered to be more secure that the real money. Cryptocurrency uses something called cryptography to secure its transactions. Cryptography, to put it in simple words is a method of converting comprehensible data into complicated codes which are tough to crack. Cryptocurrencies are classified as a subset of digital currencies, alternative currencies and virtual currencies. Major Crypto currencies are Bitcoin, Litecoin, Ethereum, Zcash, Dash, Ripple and Tron etc
In the starting of AY 2018-19, these cryptocurrencies are increased like anything, However all the gain earned by the investor have been eroded in the last two Quarters of AY 2018-19 even Quarter 1 of AY 2019-20. which resulted in heavy loss to Investors. With a view to protect the Investor RBI Ban the Cryptocurrencies So we are covering how to adjust losses arising for Cryptocurrencies and which will help to reduce tax liabilities…….
There is no specific provision in the Income-tax Act, 1961 about the taxability of cryptocurrencies. One needs to test whether Trading in Crypto currencies are in the nature Capital Asset. or Business Asset. If the transaction in cryptocurrencies are substantial and Frequent, then the same should consider as Business Income otherwise the same should classified as Capital Income. Business Income is futher Classified into Speculative and Non Speculative Income.
As per Section 43(5) of the Income Tax Act 1961,
Speculative transaction” means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips:
. Provided that for the purposes of this clause—
(a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or
(b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or
(c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or]
(d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; [or]
(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013),
shall not be deemed to be a speculative transaction
If the actually delivery takes place, then the same will be considered as Non –Speculative transaction.
Short-term capital asset: if the Cyptocurencies are held for not more than 36 months immediately preceding the date of its transfer. it will termed as a short-term capital asset. Any gain or loss arising from the Transfer will be considered as Short term gain /loss
Long-term capital asset: if the Cyptocurencies are held for more than 36 months immediately preceding the date of its transfer. it will termed as a Long-term capital asset. Any gain or loss arising from the Transfer will be considered as Long term gain /loss
This period of 36 months is substituted to 12 months in case of certain assets like equity or preference shares held in a company, any other security listed on a recognised stock exchange of India, Units of specific equity mutual funds and Zero coupon bonds.
Let us understand the Provision of Set off and Carry forward of Losses
1. Loss from speculative business cannot be set off against any income other than income from speculative business. However, non-speculative business loss can be set off against income from speculative business.
2. Long-term capital loss cannot be set off against any income other than income from long-term capital gain. However, short-term capital loss can be set off against long-term or short-term capital gain.
3. Loss from business and profession cannot be set off against income chargeable to tax under the head “Salaries”
4. All losses can be carried forward for eight years from the year in which such losses arise. However, losses from speculative business can be carried forward only for four years. Further, it is mandatory to file return of income within the due date to carry forward the losses to subsequent years.
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