India to Tax Income From Cryptocurrency Investments – Could the U.S. Be Next?

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The debates surrounding cryptocurrencies like Bitcoin span across countries. These digital currencies are volatile and sometimes unpredictable. However, due to their decentralized nature, crypto investments still draw investors in. In India, a new rule allows the government to tax any cryptocurrency-based income.

With developments like these happening in major countries, many are now wondering if the United States is next in line to make cryptocurrency tax changes. 

India’s New Tax

India’s relationship with cryptocurrencies has been a series of back-and-forth moves. In 2018, digital currencies like Bitcoin and Ethereum began to gain nation-wide traction. The Reserve Bank of India, in turn, enacted a complete ban, prohibiting all banking transactions that involved cryptocurrencies in any form. However, about two years later in March of 2020, India lifted the ban with the tax rule.

Now, this tax is shaking things up. Cryptocurrencies are popular among investors due to their decentralization — they don’t need a bank or financial institution to carry out transactions. It gives investors unique control over their digital assets. This focus has led India to enact the new income tax for cryptocurrency investments. 

Whatever you earn from bitcoin investments, you’d have to pay income tax on. This dynamic includes getting bitcoins from mining, exchanging them for fiat currencies, holding them as a stock that you then trade for fiat currencies or receiving them from sales of services or goods. 

Currently, India considers cryptocurrency as “income from other sources,” which means that investors will be anticipating a clarification of the tax at some point soon. 

The U.S. Standing

The United States, like India, has also had an interesting relationship with cryptocurrencies. However, financial and tax authorities like the IRS haven’t taken such drastic steps as the Reserve Bank of India has. At least, not yet. 

Currently, the IRS classifies cryptocurrencies as property and not as a form of income. This dynamic legitimizes crypto investments to an extent. It means that crypto has value, but not enough to merit full consideration as a currency. Though, as a property, investors in the U.S. may still have to pay capital gains taxes to properly resolve tax payments without penalty or faults.

Officially, the IRS calls cryptocurrencies “convertible virtual currencies.” Despite this classification, coins like Bitcoin and Ethereum have no legal tender in the U.S. but still warrant taxes upon trading, selling and buying. This dynamic would seem to mimic standard fiat currencies, like the U.S. dollar. Thus, investors are still hopeful that the IRS will make some changes to legitimize crypto funds. 

What’s Next?

Luckily for anyone who has their eye on cryptocurrencies, change in the States may not be too far away. At the end of 2019, the IRS added a new sheet to annual tax forms that caught the eye of many investors. 

The form is for “Additional Income and Adjustments to Income” and, at the top, you would find a question that asks if you received, sold, sent or exchanged virtual currency in any way. You could then check off yes or no. Though this addition is subtle, it could potentially be a big step in the right direction.

The IRS is likely trying to get a feel for how many people in the States acquire crypto funding in one way or another. After appearing on the 2019 tax forms and with tax season slowly creeping up, this year’s forms could again make some alterations. Changing the classification from property to a currency would be the ultimate change for investors. 

Regardless, the IRS likely wants to get a handle on crypto investments so it knows how to adequately address its taxation. 

The Great Debate

While some investors want the IRS to change the classification of crypto and make it a legal currency, others prefer the decentralized nature of the field. Still, the IRS is going to progress in the best way it sees fit. If other countries like India are any indication, crypto could become a currency within the next few years. 

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