Tax On Cryptocurrencies Like Bitcoin In India



Tax on Cryptocurrencies Such As Bitcoin In India

Taxing in itself is a cumbersome job, add in the current take of Indian governance towards Cryptocurrency and the complexity piles up. Virtual currencies were touted to be more secure than real money when they first upsurged. However, for the Indians who chose to be a part of the Bitcoin family have to now face the gruesome task of filling tax on gains accrued by investing/trading/mining cryptocurrencies.

On one hand, The Reserve Bank of India (RBI) raises its concern regarding the regulatory framework governing cryptocurrencies and maintains an ambiguous stance on the validity of such investments. While on the other, investors still have to incur taxes for holding/trading/mining virtual currency. Even though there is no separate statute in the law book detailing tax norms for cryptocurrencies, but the law is clear on taxing income irrespective of the form in which it is received.

Presently, RBI has outlawed cryptocurrencies and prohibited banks from dealing with cryptocurrency exchanges. But people who have had invested in cryptocurrencies before this ruling are liable to pay taxes. Moreover, the I-T department has the investors under scanner after they served around 5,00,000 notices(to investors), upon their across the country survey of cryptocurrency exchanges in December 2017.

Also Read:- Tax and Cryptocurrencies: 4 Facts You Should Know

Cases Where Income Earned Via Cryptocurrencies Are Taxable

Cryptocurrency mining

Cryptocurrency Mining requires expensive hardware and continuous flow of huge electricity due to which it is a capital-intensive activity. However, income generated by mining of cryptocurrencies is self-generated and thus the cost of acquisition cannot be ascertained. Further, the Section 55 of the Income Tax Act, 1961, that lays down the template for computing the cost of acquisition for self-generated assets does not include cryptocurrencies. Meaning, the miners are exempted from the tax net, until the government amends the I-T Act to include the virtual currencies.

Investment in cryptocurrencies exchanged for real money

The rules which are applied to income from capital assets are applicable in this case. Short term gains will be taxed as per the income slab it falls under, while long-term gains will be taxed at a flat rate of 20 percent.

Also, the I-T department can make use of the ambiguity in the statute book, that classifies such transactions as “Income from other sources” rather than as capital assets. This can be beneficial in the cases where income exceeds Rs 10 lakh and the tax liability is calculated at 30 percent, as opposed to the flat 20 percent for long-term capital assets.

Cryptocurrencies held as stock-in-trade

In simplest of terms, trading in cryptocurrencies will bring in income from business, concurrently qualifying the profits earned for taxation under the different slabs set by the law.

Payment for goods and services

At the time of publishing this article, the Indian Government had made it very clear the Cryptocurrencies like Bitcoin are not classified as a “Legal Tender Of Money” and thus any organisation/individual cannot accept cryptocurrencies in the form of payments in exchange of goods or services.

But in future, if the Indian government allows to accept cryptocurrencies as payments, the volume and total volume of such transaction is expected to be quite substantial due to various benefits attached with cryptocurrencies. In such a case, taxing those transactions cannot be ignored.

If transactions are carried out in cryptocurrency,it will be considered as income from business.This implies that tax will be levied under the head “Profits And Gains Of Business Or Profession”, as is applicable to trade in the conventional sense. Depending on the quantum of such transactions, the total income will be taxed as per the rate of the slab it falls under.

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Also Read:

  • Republic Of France Reduces Bitcoin Tax from 45% to 19% 
  • Poland Temporarily Waves off Tax on Cryptocurrencies
  • Latvian Government to Put 20% Capital Gains Tax On Cryptocurrency Transactions
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