Solving the complexities of computation in crypto taxation

economictimes.indiatimes.com:

crypto investor base witnessed explosive growth over the last 2 years, with recent estimates suggesting over 20 million crypto investors in India. India’s decision in February 2022, to explicitly identify crypto and other virtual digital assets (VDA) for taxation led to initial panic in the industry.India was to start taxing gains on VDA investment activities at a flat 30 per cent rate from 1st April 2022.

Additionally, the government announced the imposition of tax deducted at source (TDS) from 1st July 2022; the onus of which was largely placed on the crypto exchanges operating in the country. While there have been some hawkish comments from policymakers (including the RBI) on crypto trading and its exposure at an individual investor level, we believe such attention was largely directed towards creating adequate investor protection checks and balances and managing systemic risk across the entire crypto ecosystem.

Such policy concern is welcome if it leads to stability and greater transparency and accountability for the industry to prosper in the long run. The government has yet to explicitly grant legal status to VDAs, while the reality of taxation is well upon us.

Even before the policy action in February 2022, prudent crypto investors were filing tax returns based on their interpretation of what is deemed income or capital gains for the tax year ended 31st March 2022 and 2021. In many instances, such computations of tax liabilities were either grossly overestimated or underestimated.

Unlike the conventional financial markets of equities, crypto investors trade across 8-10 main crypto exchanges that are registered in India, as well as 3-4 primary international exchanges. For those investors that rely on these