TaxNodes: How ex-ZebPay CEO wants to simplify crypto tax filing for Indians
Founded in December 2022, TaxNodes is led by Avinash Shekhar, a chartered accountant and crypto industry veteran. Shekhar was the CEO of ZebPay till September 2022.
Indians must pay a flat 30% tax on income generated during any profitable crypto transaction. This is irrespective of other loss-making transactions involving the same crypto asset.
Therefore, profits on each transaction have to be calculated separately and manually, making the process of crypto tax calculation immensely difficult for individual users. Further, most existing tax software does not feature any formulas to calculate crypto tax.
TaxNodes—founded in December 2022 by Avinash Shekhar—is a crypto tax computation startup looking to solve this problem. A chartered accountant and crypto industry veteran, Shekhar was the CEO of the crypto exchangetill September 2022.
“When there are hundreds or thousands of transactions, it becomes next to impossible to calculate crypto tax manually. An accountant won’t be able to do it either,” he says.
“There is a need for a specialised crypto tax tool—and that's where TaxNodes comes into the picture.”
Shekhar claims the startup has built a tax software with a unique formula to calculate crypto tax despite its complexities. Its goal is to simplify crypto tax computation and provide AI-assisted tax solutions for individuals.
It recently raised a seed funding round, securing $1.6 million from Rahul Pagidipati (CEO, ZebPay), Nischal Shetty (CEO, Shardeum and Founder of WazirX), Ashish Singhal (Co-founder and CEO, CoinSwitch), and Ajeet Khurana (Founder, Reflexical).
“We are also working towards helping crypto exchanges increase their internal controls and automate reconciliation and accounting,” Shekhar tells The Decrypting Story.
TaxNodes has integrations with major Indian and global crypto exchanges (for calculating tax for off-chain transactions) and with blockchain protocols (for calculating tax for on-chain transactions).
These include CoinDCX, CoinSwitch, WazirX, Zebpay, Bitbns, Giottus, Binance, Ethereum, Polygon, Tron, Avalanche, etc.
Current tax regime
As per the current crypto tax regime, no deduction, except the cost of acquisition, can be made while reporting income from the crypto transfer.
It means two things.
Firstly, losses incurred from a transaction involving a crypto or NFT cannot be offset against income from other transactions involving the same asset.
Second, losses incurred from a transaction involving a crypto or NFT cannot be offset against income from transactions involving other crypto or NFT assets.
There is also a 1% Tax Deducted at Source (TDS) applicable on all crypto transactions, but since TDS is standardised across transactions, it doesn’t lead to any real complications.
The inability to offset losses against profits makes crypto tax calculation difficult, and the lack of a software equipped to deal with this rule has given rise to crypto tax tools like TaxNodes.
Understanding crypto tax
Let’s look at a simple example. Let’s say a user has purchased 0.1 BTC five times at various prices and sold it in tranches of 0.2, 0.2, and 0.1 BTC at various prices.
The first step is to calculate the profit on the sale of the first 0.2 BTC, which involves adding the costs of acquisition of the first two purchases of 0.1 BTC each and then subtracting the total from the final sale price of 0.2 BTC.
The same has to be done for the next two sales. At each step, the costs of acquisitions vary and the sale prices.
Users also rarely buy and sell in simplified tranches, like the ones mentioned in this example. It is common to buy various percentages of fractions of BTC, often going into several decimal places. For instance, a user would pay Rs 5,000 to buy 0.0023 BTC.
A user would also invest in several other crypto assets, and they would also move crypto between exchanges. It would require the information on the cost of acquisition to be transferred to the second exchange, as prices between exchanges also vary.
Some users also withdraw crypto from exchanges into their crypto wallets and invest it into crypto lending pools, swap on decentralised exchanges, etc.
At the end of the financial year, users would have made hundreds, if not thousands, of transactions.
“The core of what we have built at TaxNodes is a tool that synthesises all this data seamlessly. All a user has to do is download reports from the exchanges they use and upload them to our platform,” Shekhar says.
“The platform takes care of the rest. There is no need to change formats. If an exchange has a public API, there is no need to download and upload reports. It can be done automatically,” he explains.
TaxNodes’ integrations with exchanges are a key pillar of growth in its early days. It has exclusive marketing tie-ups with WazirX, ZebPay, and Giottus.
It aims to attract users of crypto exchanges to TaxNodes’ platform, where users can choose from a variety of paid packages for crypto tax calculation.
The basic crypto tax plan, which can handle up to 500 transactions, is worth Rs 999 on the TaxNodes platform.
It has also a crypto plus capital gains ITR plan and expert reviews and bundles, which start from Rs 4,999 onwards.
The most expensive plan costs Rs 8,999, and it can handle up to 10,000 transactions, involves a complete IT solution, and an expert review.
“We didn’t want to provide a free platform as we wanted serious customers. We’d rather cater to fewer paying and serious customers than a larger volume of free users,” Shekhar explains.
Edited by Suman Singh