Crypto tax: How KoinX is building a simple tax platform for Web3 transactions
Crypto taxes are confusing to many retail investors. India has recently implemented a 30 percent income tax on crypto profits and one percent TDS on crypto transactions, yet many questions remain unanswered.
How are taxes calculated for transactions from crypto wallets like MetaMask, Trust, etc., - wallets that are anonymous? What about profits from DeFi (decentralised finance) and NFT (non-fungible token) transactions?
And most importantly, is there a simplified tax platform for crypto that consolidates all user transactions?
Seeking to address these questions and solve for crypto taxation, entrepreneur Punit Agarwal startedin 2022 and set out to build a unified crypto tax platform.
With KoinX, the vision is to enable investors to automate crypto taxations by combining investor portfolios and transactions on a single, unified platform with centralised dashboards.
Punit tells The Decrypting Story:
"There are a variety of transactions that exist on Web3—right from crypto trading, buying and selling of NFTs, staking crypto to earn interest, and a lot more. An individual user usually performs these transactions across a range of platforms."
He adds, "To solve crypto taxation, there needs to be a singular, third-party platform where a user's transactions—spanning a diverse set of platforms—are captured and used to generate a common crypto tax report. This is what we are building at KoinX."
The platform has already integrated with crypto exchanges, including, , , , , and , to automate the calculation of tax implications for crypto users.
Earlier this month, KoinX closed its seed round with a $1.5 million fundraise led by iSeed Fund, KubeVC, Ratio Ventures, Tykhe Block Ventures, 1947 Rise, and We Founders Circle. Other investors, including senior business leaders of Netflix, Bain Capital, , , , , and , also participated in the round.
KoinX also acquired Crypto Kanoon, a Web3 legal awareness and community platform.
How KoinX works
KoinX’s integration with Indian crypto exchanges is the key to making it easy for users to calculate their crypto taxes.
The user must first download transaction data from all the crypto exchanges, platforms, and wallets they use. Then, they should upload the files on KoinX.
Following this, KoinX calculates the user’s capital gains and generates a ready-to-download tax report. The report can be used by the user to declare their crypto income.
While the crypto exchange integrations are ready, crypto wallet integrations will take some more time. KoinX may ship its crypto wallet features by August or September 2022.
“With wallets, since there is no KYC, there is a declaration the user has to make wherein they confirm the wallet being linked is their wallet and that they will pay tax on income from transactions on it,” Punit explains.
He goes on to clarify that KoinX is not a product for collecting user data or tracking wallet activity, but simply a platform for users who wish to remain compliant with India’s crypto tax laws.
Obvious, but hard-to-build solution
Solving for crypto tax is a fairly obvious whitespace for entrepreneurs. In India, the likes of Clear, Binocs, and Catax are looking to address the gap. International platforms such as CoinTracker and TaxBit are also looking to enter the Indian market, according to Punit.
However, Punit says building a crypto tax software is easier said than done, and so, business opportunities are plenty.
“It is a complex thing to build for anyone. Unlike the traditional stock market, where you have one demat account, crypto markets see price fluctuations in each token across exchanges. Further, accessibility of coins is not similar across exchanges,” Punit explains, highlighting how these factors result in users investing in crypto and NFTs across various platforms.
“Building any tax platform involves integration with several parties, and the integration has to be seamless. This is despite there being no standardisation in the industry. For instance, the date formats or international time formats used by crypto exchanges vary. Further, some exchanges call a certain type of transaction a swap, while another refers to it as a crypto-to-crypto exchange,” he adds.
Currently, KoinX has waitlisted users and has been inviting customers to test the initial product in batches of 1,000. Once the complete product is public, KoinX will be a paid service.
The first version caters to only crypto exchanges and will be free to use. The new version, with a full wallet and exchange integration, will be a SaaS product that users can subscribe to.
“Pricing would depend on the number of transactions and type of transactions. The base plan will be Rs 749 per annum, but it could go up to Rs 5,000 per annum based on the users’ requirements. We will also have a monthly subscription option,” Punit says.
Indian market for crypto products
Between June 2021 and June 2022, the crypto market in India grew by 600 percent (as per Chainalysis). But income tax and TDS implementation, combined with the downfalls of Vauld, Celsius, 3AC etc, and global bearish sentiment around crypto resulted in over 70 percent trading decline in top Indian exchanges.
Nevertheless, several entrepreneurs like Punit await a reversal that will see mass adoption of crypto pick up in India, buoyed by the proliferation of simple and useful products like KoinX’s tax software.
These volatile shifts in crypto market sentiment are not new to Punit, who has been involved in Web3 for five years and has experienced various bull and bear runs.
“After working with government and educational initiatives around blockchain, I also ran Polygon co-founder Sandeep Nailwal’s Crypto Relief programme to mobilise crypto funds to those in need during COVID-19,” Punit says.
“I ensured the relief funds did not fall into the wrong hands, and that’s when my journey into crypto compliance and eventually taxation began, leading me to start KoinX.”