Which accounting method is used for cost basis?

Modified on Sat, 6 May, 2023 at 1:26 PM

In crypto taxation, tax is levied on sale or transfer of crypto assets.

A crypto trader or person dealing in crypto has various amounts and units of purchases and sales at varying time zones, prices, quantities.

On sale of crypto, to charge tax on gain, cost of acquisition is allowed. However, if purchase unit and sale unit are not tallied, then COA purchase price can be valued as per FIFO (First-In First-Out) or weighted average basis whichever is beneficial to the client.

There would not be major differences between two methods , Generally FIFO is used for ease of calculation .

Let us show you an example for FIFO basis :

Date	Type (Buy/sale)	Units of crypto	Value (Price per unit )
10-04-2023	Buy	10	100
12-04-2023	Buy	25	125
14-04-2023	Sale	15	135

On 14-04-2023, on sale of crypto, crypto tax@30% is triggered if there is profit on sale, profit is Sale value reduced by cost of acquisition.

As client sold 15 units, but purchased 10 & 25 units separately, Applying FIFO method of valuation(Unit purchased first are deemed to be sold first ), profit computation is as below:

Particulars	Units	Price per unit	Value(Amount)
Sale consideration	15	135	2025
Less: Cost of acquisition (FIFO)
10-04-2023	10	100	1000
12-04-2023	5(Out of 25 only 5 are sold )	125	625
Profit/(Loss)			400

As there is a profit of Rs.400, trader is required to pay tax @30% for this particular transaction i.e Rs.120/- and to be disclosed in income tax return .