What is a cryptocurrency?

A cryptocurrency is a digital asset that can be used as a medium of exchange. Cryptocurrency, as the name suggests, uses cryptography to secure transactions and regulate the production of the currency. These digital assets are based on the distributed ledger concept of blockchain.

What is blockchain?

Blockchain is, in a sense, an immutable series of time-stamped data that is managed by a cluster of computers and not regulated by a single entity. Each of these blocks of data is linked to one another through strong cryptography.

The way blockchain works is quite ingenious. One party initiates a transaction by creating a block, this block is verified by thousands of computers, called nodes, in the network. One the block is verified and found to be authentic it is added to a chain of blocks and stored on the network. This creates a unique record of the transaction and the historical data related to the transaction. Trying to falsify a single transaction in this blockchain would mean making changes to millions of blocks, which is virtually impossible. Cryptocurrencies use blockchain for monetary transactions, but this system can be deployed in a number of fields.

Why is blockchain catching on?

There are a number of reasons why blockchain is gaining popularity across the globe. We have mentioned a few reasons below:

It is a truly decentralized system. There is no single entity in control of the system, making it almost immune to corruption.

It is highly secure as all data is linked through strong cryptography

The blocks are immutably linked to one another, making it impossible to tamper with data within the chain

A blockchain is a form of distributed ledgers. This provides users high transparency in the network.

What is crypto tax?

Crypto tax is the tax that is levied by the government on the profits or gains generated from transactions in cryptocurrencies. Presently, there are three instances where you could get taxed on your cryptocurrencies.

• Crypto-mining.

• Exchanging Cryptocurrencies for fiat currencies.

• Receiving payments for goods or services in Cryptocurrencies.

What are the steps you should take while calculating crypto-tax?

There are 5 steps to calculating taxes on your cryptocurrencies.

• List all your transactions

• Valuation of Holdings

• Calculate total scams

• Use the tax formula

• Total Taxable Income

List all your transactions

Make a list of every transaction you have made using cryptocurrencies to either make payments or receive payments in Indian Rupees.

• Valuation of Holdings

• Calculate the total value of your cryptocurrencies in Indian Rupees.

Calculate Total Losses

If you participated in an ICO or sent cryptocurrency to a malicious address, calculate the value of your cryptocurrency on the day of your scam. These scams can be considered losses and can be adjusted against your profits.

Use the Tax formula

There is a simple formula to calculate your profits from cryptocurrencies.

Total profit = INR transaction-based profit + Current valuation of holdings – Loss due to scams

Total Taxable Income

The profits generated from transacting in cryptocurrencies will be added to your taxable income. The taxable income will be taxed according to the appropriate tax slab.

Crypto-Tax Software

There are a number of resources that have been created around cryptocurrencies to make transacting and tracking them much easier. You can also use software to calculate your total tax liability on cryptocurrencies. These platforms are easy to use and simple to understand. Here is a list of the top 5 crypto-tax calculators.

1. ZenLedger

ZenLedger is a premium crypto-tax software that allows you to import cryptocurrency transactions, calculate profits and income and auto-fill tax forms for filing your crypto-tax. This intuitive software is super-quick and easy to use. ZenLedger has partnered with TurboTax, so when you complete your tax calculation you can download and use the pre-formatted file for TurboTax.

2. ClearTax

ClearTax is has developed its own crypto-tax software for India. This software is easy to use and its ergonomic design makes it simple to understand. With this tool, you will be able to calculate your total tax liability from cryptocurrency in minutes and stay on top of your taxes. The software will ask you for the means by which you acquired the cryptocurrency and the sale price, buying price and transaction fees associated with this transaction. After you have provided this information it will give you a total breakdown of your taxes and your total tax liability.

3. CoinTracker

CoinTracker is a simple and free-of-cost app that you can use online to calculate your total crypto-tax liability and fill out tax forms. The software requires you to sign-up via an email address. Once you have signed up for CoinTracker you can start calculating your crypto-tax liability. Once you sign in to your CoinTracker account it will take you to the tax calculation page. Here you will be given three steps to calculating your crypto-tax liability. In step 1, you will need to import your exchanges and wallets. Step 2 will require you to review your transactions and step 3 will give you auto-filled tax forms.

4. myCryptoTaxCalculator

This is a simple, lightweight software to help you calculate your crypto-taxes and fill out the required information in tax forms. myCryptoTaxCalculator will help you generate a tax report in three simple steps.

Step 1: Import exchanges and wallets

Step 2: Review your transaction history

Step 3: Generate a tax report

5. CryptoTrader.tax

CryptoTrader.tax is a tax reporting software built to make crypto-tax reporting less painful. Instead of spending hours pouring over spreadsheets this software allows you to simply import your exchanges and wallets directly onto the platform. The CryptoTrader.tax engine sorts this data and runs it, and with a click of a button, you can receive a tax report that you can file yourself.