Friday, February 23, 2024

Tax Saving Strategies for Cryptocurrency

Investing in cryptocurrency is the hottest trend in the global investment market right now. These digital currencies are not controlled by governments or other centralized financial institutions because they are decentralized. However, the government continues to tax the profit made from its sale, trading, or transfer.

The Government of India has introduced taxation rates on digital currency profits in the Union Budget of 2022. Profits from digital assets would be taxed at 30% with a 1% TDS deduction.

However, did you know that there are several strategies you can use to easily reduce the amount of tax you must pay on crypto profits? Read more.

How can you save money on cryptocurrency taxes?

Here are some of the best tips for lowering your crypto tax:

Invest in cryptocurrency for the long term.

In crypto, you should always plan for long-term capital gains rather than short-term gains. This allows you to save money on taxes.

When you sell your assets after holding them for at least 12 months, you have a long-term capital gain. A short-term capital gain, on the other hand, occurs when you sell your investments in less than 12 months.

According to experts on tax on cryptocurrency in India, long-term capital gain taxation on crypto assets would be much lower than short-term capital gain taxation. According to some experts, long-term crypto gains may help you reduce your crypto taxation by 10%.

If you want to sell your cryptocurrency, you should do so after a year. The low tax rate will allow you to save more money on taxes.

Obtain indirect exposure to cryptocurrency

Receiving indirect exposure to cryptocurrency is one of the most effective ways to reduce your crypto taxation. Surprisingly, certain recently launched portfolios by various global investment platforms enable Indian crypto investors to gain exposure to a specific digital currency without directly investing in it.

 Through such indirect exposure, you can benefit from low taxation as a crypto investor.

 During a low-income year, SELL.

The taxation rate on your cryptocurrency sales is determined by your taxable income. Because a lower income means a lower tax rate for that fiscal year, selling your crypto assets during a low-income year helps you save on crypto taxes.

Another advantage of waiting for a low-income year is that the tax rate for crypto assets will be calculated using long-term capital gain rates after a 12-month period. As a result, you benefit from a double tax break.

Maintain your gains in stablecoins.

When you invest your cryptocurrency sales profits in stablecoins, you not only save taxes, but you also secure your investment in the long run.

Stablecoins, as opposed to cryptocurrencies like Bitcoin, have their value pegged to another currency, commodity, or financial instrument, making them far less volatile. As a result, investing in them is less likely to result in a long-term capital loss.

For example, the value of one USD Coin equals one US Dollar. Given the rise of the US dollar, investing your cryptocurrency in a stablecoin may be a wise decision.

These are some methods for avoiding crypto taxes. However, before implementing any of these suggestions or strategies, it is strongly advised to seek the advice of a tax professional.

Remember that the crypto taxation rate introduced in this year’s budget will not apply if you made any crypto gains on or before March 31, 2022.

A well-planned strategy ensures that your tax-saving strategy yields the best results while adhering to income-tax guidelines. Binocs is the website which eases your task at crypto tax management and crypto portfolio tracking. Check it out now. 

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