By Avinash Polepally

Over the years, the cryptocurrency market has witnessed remarkable growth. Factors such as increasing acceptance, adoption by individuals and institutions, growing interest in decentralized finance (DeFi) platforms, and the potential for cryptocurrencies to hedge against inflation and political instability have contributed to this growth. ` Advancements in blockchain technology and using cryptocurrencies for cross-border transactions have also played a pivotal role.

As more businesses and individuals embrace cryptocurrencies, digital assets are becoming a preferred medium for day-to-day transactions. By 2023, the crypto transaction value is predicted to surpass $16 billion, and the user count is expected to reach 994.30m by 2027.

On the hind side, investing and trading in cryptocurrencies can lead to capital gains and losses and the daunting task of calculating taxes. Just like traditional money transactions, crypto trading carries tax liabilities that must comply with regulations.

Considering complexities, technology-backed tax calculation tools alleviate the challenges faced by investors from crypto transactions. By connecting to exchanges and wallets, crypto tax platforms are simplifying the process of compiling transactions and tax calculations. 

Tech-based Computing – A Cost-Effective Solution for Investors

Crypto taxation can be confusing for first-time investors. Fortunately, the Internal Revenue Service (IRS) has issued comprehensive guidelines on filing taxes for crypto transactions. Many inexperienced investors found themselves unprepared, seeking assistance from chartered accountants (CAs) to navigate the complexities of filing crypto taxes comprising multiple transactions involving various crypto tokens and different exchange rates.

One of the major challenges is that crypto exchanges operate differently from traditional stock exchanges as they enable investors to use one cryptocurrency to purchase another, such as using Ethereum to buy Bitcoins or Bitcoins to buy Matic. However, the statements provided by these exchanges only indicate the quantity of the cryptocurrency involved in the transaction, such as ‘-100 Matic’ or ‘+1 Ether’, without mentioning the corresponding value in a specific currency like INR. This poses a challenge even for CAs, as they need to convert each transaction into the token’s INR price at a given time point on a particular exchange.

Crypto tax compliance platforms play an important role in overcoming challenges. They offer features such as uploading transactions or connecting wallets and exchanges at a fractional cost.

In contrast, CAs often charge approximately Rs 2 lakh to compute an individual’s crypto taxes for one year. Leveraging technology, crypto taxation platforms provide a cost-effective solution, offering the necessary tools to convert transactions and provide accurate details in a shorter time frame.

Digital Crypto Taxation Platforms – A Gamechanger for CAs

As the number of crypto traders rises in India, it is essential for CAs and financial advisors to stay updated on the developments in the Web3 industry. This allows them to advise clients on the tax implications of crypto transactions and navigate the regulatory landscape. Crypto tax calculations pose challenges for CAs, especially when dealing with multiple users. 

To simplify the process, CAs can consider investing in crypto tax software. These tools integrate with crypto exchanges, making reporting and bookkeeping more manageable. They offer features such as document preparation, net profit and loss calculations, and real-time preview of tax bills, streamlining the overall tax filing process. It simplifies the process by offering a single dashboard to manage multiple clients. It enables CAs to access transaction data and statements from exchanges without needing separate login credentials. Additionally, the platform provides cost relief for clients, with pricing starting at approximately Rs 2,500 per hour and going up to around Rs 60,000-70,000 for a single consultation with CAs.

 To Encapsulate

The Crypto industry in India is rapidly growing and has a significant impact at the grassroots level. It is becoming one of the fastest-growing technology sub-sectors, with a transformative role in healthcare, safety, digital identification, trade and finance, and remittances. According to the National Association of Software and Services Companies (Nasscom) report, the industry is expected to reach a value of $241 million by 2030. Key trends, including Bitcoin, Smart Contracts, Decentralised Finance, Tokenization, Non-Fungible Tokens, CryptoTech Capital, and Central Bank Digital Currencies, are driving the growth of crypto-tech in India. 

Though the crypto industry is gaining traction in India and worldwide, the absence of clear taxation and regulatory frameworks hampers its growth potential. Therefore, a well-regulated space can drive India’s economic transformation towards a decentralized and digital-first ecosystem. 

The author is senior director – crypto business, ClearTax

Follow us on Twitter, Facebook, LinkedIn