One of my friends has received some very good returns on his ETH. We discussed about how this should be declared for tax purposes.
Since India hasn't classified what kind of an asset crypto is, we looked up to next best thing, USA regulations. USA says crypto is a capital asset.
In India if you buy & sell capital asset within 3 years period, it is short term capital gain. If difference between buy & sell date is more than 3 years, it is long term capital gain.
STCG has 30% tax and LTCG has 20% tax.
So my friend decided to sell his ETH 3 years after the purchase date, so that he can pay 20% tax, instead of 30%
I think this makes sense until there are formal regulations.
Makes sense. But how exactly are they going to find out for how long we've been holding the gains for? I assume they would check the transaction history which could take ages. And what about if one purchased more every day or so? Regulators are gonna have a tough time figuring this out IMO.
If the user comes under scrutiny, I believe the burden to prove the transaction history would be on the user, not the government. So no matter what happens, you should always keep a history of all your transactions:
Fiat --> Crypto
Crypto <--> Crypto
Crypto --> Fiat
For example if you bought ETH at the time of ICO in July 2014 and you're claiming LTCG after July 2017, then if the IT people asks for proof, you should be able to show them the transaction IDs with Date/Time of when you received ETH in your wallet and when you sold them for BTC and converted to Fiat.
This can be facilitated by providing wallet history with transaction IDs / emails from exchanges / trading logs from exchanges / bank statements
Since nothing like this has happened in India yet, we don't know how this is going to turn out, so better to be prepared for such scenario rather than getting into trouble afterwards.