Tax authorities in India have expressed money laundering concerns with investments and trading of cryptocurrencies like bitcoin. Indian tax authorities fear that trading of cryptocurrencies ‘could become conduits for illicit flows and the movement of black money.’ As awareness and adoption of bitcoin grow in India, there are concerns among authorities about the potential for abuse by tax evaders and money launderers.
Indian Taxation authorities regulate the country’s digital currency industry, with a ban highly unlikely. Regulation of the industry is also likely to coincide with taxation of bitcoin adopters in the general public.
LEGAL STATUS OF BITCOINS IN INDIA
Until and unless a legal framework and regulation are finalised, such confusion will continue to exist. However, bitcoins have yet to be regulated, which means that the government is not regulating this currency the way it regulates Indian Rupee or any other form of currency. An interdisciplinary committee has already been set up by our government to explore the framework regarding virtual currency.
If you are a bitcoin trader or platform provider, then so share your views on the taxation aspect, by commenting right here.
Recently RBI issued fresh warnings, reminding investors that it has not authorised any entity to deal in Bitcoins and that any investor or trader dealing with virtual currencies “will be doing so at their own risk.
Trading activity may also come under the jurisdiction of the Securities and Exchange Board of India (SEBI), which regulates the country’s securities market.
Ultimately, bitcoin and other cryptocurrencies may come to been viewed as kinds of digital assets under Indian law.
ACTIVITIES OF BITCOIN DURING TRANSACTIONS :
Any gain on Bitcoin is taxable as any gain on account of Bitcoin exchange is certainly (100%) taxable because the definition of income u/s 2(24) under Income Tax Act is inclusive, which mean every kind of income unless clearly exempt . “The CBDT has in the past issued a circular (4 2007) which, after taking into consideration various judicial precedents, has set out various tests to determine whether shares are held as investment or stock in trade.The same parameters can also be applied to bitcoins.”
1. During Purchasing of Bitcoins: No taxation liabilities purchasing of bitcoins
- When the Price of Bitcoin is start increasing : When you hold the Bitcoin, thereafter its prices get increased or rise in your Bitcoin than, you do not pay -any tax till the time you actually sale it off and book the profit or gains. you do not pay any tax till the time you actually sale or transfer it to someone in exchange of any other benefit in cash or kind, it off and book the profit or gains, irrespective of the magnitude of the appreciation.
- On sale or exchange of bitcoins: It means that in any of below scenarios, the resulting gains(/ loss)will become taxable, you need to declare, compute and discharge the tax liability as earlier, In the following moment taxability on Bitcoin arises.
- sell or trade your bitcoins or
- exchange with any other thing say Indian or foreign Currency currencies or
- Trade your bitcoins as a barter for buying any other thing or paying for any kind of purchases,
Taxation of barter transactions for buying any other thing or paying for any kind of purchases where consideration is paid in bitcoins: While the general acceptability of bitcoins in India is pretty low, it is not unusual to find savvy businesses accepting bitcoins as consideration for the sale of goods and services.
Trading of Bitcoin i.e Speculative Income : This is debatable on account of lack of any law related to taxation of Bitcoin in the Income Tax Act . It will be determined on the basis of each facts and circumstances. In case of trading it will be considered as speculative income and will attract tax as per slab rate of Individuals.
Bitcoin transaction as a nature of Investment i.e. Long-Term Or Short-Term Capital Gains : As per us Given the wide nature of definition of capital assets under Section 2(14) of the I-T Act, the purchase of bitcoins, if it has been made for the purpose of investment, should be treated as a capital asset. Thus, any gains arising on transfer (ie: sale) should be characterised as capital gains.”
It the transaction are not frequent and are in nature of Investment in the currency, it would be classified as capital gains and would attract either long-term capital gain tax or short-term capital gain tax, depending on the holding period.
Under capital gains, there are two aspects:
- Long term capital gains tax is 20%, but the time-period for investment should be at least 12 months. Hence, if a bitcoin trader holds his investment for a year, then it can be legally classified as long-term capital gains.
- Short-term capital gains is taxable as per relevant Tax-slab, which is 30% on income more than Rs 10 lakh. In that case, short-term capital gains tax at 30% would be applicable
Income from sale of Bitcoins earned and received outside India by Non Resident : Income from sale of Bitcoins earned outside India and received outside India will not be taxable in India if you qualify as non resident or resident but not ordinarily resident in India. Subsequent remittance of the said income will also not be taxable in India. But since the issue is not a settled concept, there can be possible litigation with the tax authorities on this issue
Taxation on Professional Income blogger, freelancer or consultant earning in Bitcoins : If you are a blogger, freelancer or consultant earning in Bitcoins, you may be wondering how to file your taxes for income from any services rendered to clients in India or abroad. an applicable rate of income tax as per your income slab will apply. If your income exceeds Rs 10 lakh then the applicable tax rate is 30 percent plus surcharge and cess.
Advance Tax payable on returns on Bitcoin investment along and Future: – Advance tax deadline is on December 15, Bitcoin investors and their consultants are trying to figure out a way to deal with the returns on Bitcoin investment along with other cryptocurrencies.
GST on Bitcoin : Since Bitcoin is not specifically mentioned in the list of Goods and it cannot be treated as an “Essential commodity” which maybe exempted from GST, nor it suffers a tax like the STT applicable for stocks and CTT applicable to commodities traded through exchanges, the rate of GST on Bitcoins may be treated as 28%. If Bitcoin is taxed under GST as a normal commodity which is manufactured, imported or exported, bought and sold at each purchase point the buyer is entitled to claim input credit
As per my advices India may put in place a goods-and-services tax on bitcoin purchases.
We can expect some clarity once the Finance Ministry finalises its opinion on a report on virtual currencies that was submitted to it recently. It would be interesting to see if GST will be applicable or not? Only future has answer to it.
In so far as the tax code in India is concerned income, profits and gains are taxable even if they are received in money’s worth instead or real money or currency. Therefore, the value of bitcoins received would also be considered income in India in the hands of the recipient and the profits on such income subject to tax at the rates applicable to both Purchaser and seller,
Therefore, Seller’s profit on the transaction would be equal to the INR value of bitcoins received less the cost of the table and similarly, Purchaser’s profits would be equal to the value of bitcoins received less any deductible expenses incurred while rendering the services.
Conclusion: According to the law if somebody makes some money that should be subject to income tax.” Even if bitcoins were illegal, income earned needs to be declared and tax paid. No final decision has been taken but it is under active consideration. Having said that, mining, buying and selling virtual currencies is not illegal in India, but it is also not recognised by law either. There is a question mark on the taxability aspect too. So if you have been trading or investing do make sure any gains from the sale of Bitcoins is included in your income tax return. The buying and holding of Bitcoin won’t attract any Income tax liability. Until and unless a legal framework and regulation are finalised, such confusion will continue to exist.
(Disclaimer: The author is a Chartered Accountant and the Chief Gardener & Founder Director of Rajput Jain & Associates , a leading Tax & Investment Planning Advisory Service Provider. His blog can be found at https://carajput.com/blog/ For any query you can write to firstname.lastname@example.org . Before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on)