Many investors who frequently invest or trade in cryptocurrencies are rushing to their advisors to find out do The implications of their investment, even if the government wants to introduce a legal framework around cryptocurrencies. Tax experts say that given the regulatory vacuum around the cryptocurrency, investors want to know the income tax impact on their returns, which can be anywhere up to 30%.

Tax experts are divided as to whether returns from crypto assets should be classified as capital gains — which applies to assets such as equity or real estate — or business income.

“As regards the tax treatment of the sale of cryptocurrency held by individual investors, the principles governing to tax Sudhir Kapadia, National Leader-Tax, EY India, said, “Securities in the form of capital gains versus business income will be equally applicable in respect of cryptocurrency assets.”

“In other words, if the frequency and number of purchase and sale transactions are very high, tax officials may be inclined to emphasize business income characteristics for these transactions.”

Tax experts say that many investors have made substantial returns from cryptocurrencies and have even paid off some of their positions.

In most of the cases, the money is directly back from the crypto wallet or through some other channels to their bank accounts and it is ready to attract the attention of tax authorities.

This comes at a time when the government is looking to bring in a cryptocurrency law.

The government is planning to define cryptocurrencies in the new draft bill and treat them as an asset/commodity for all purposes, including taxation, as first reported by ET on September 3.

People familiar with the matter told ET that the draft bill also considers proposals to segment virtual currencies based on their use cases in payment, investment/security and utility (source of income).

Tax experts say the tax on cryptocurrencies will also depend on how the government defines the asset.

Tax experts say that many investors have begun to learn how to tax their returns from crypto assets. “The inquiry deals with aspects such as whether crypto should be treated as an asset or a commodity, exchange of one type of crypto currency for another crypto currency, valuation of crypto, converting crypto to fiat, consideration received in crypto Taxability of non-crypto business, gifts of crypto (i.e. transfer of crypto from one soft wallet to another without consideration), calculation of income on crypto and tax rates, indexation, allowable deductions on such income,” according to KPB & Associates Partner Paras Savla, a tax advisory firm.