- Bitcoin is a cryptocurrency invented by a few unknown groups of people. You can buy or sell bitcoins on a bitcoin exchange. The currency is not controlled by any bank or government. Blockchain is the leading technique behind bitcoin and other cryptocurrencies. It's a public ledger of information that records all bitcoin transactions.
- Bitcoins have been the focus of a couple of years and attracted the attention of the tax authorities, basically because of the premium prices they have seen buying and selling on exchanges in India and around the globe, and the regulatory framework of taxation needs to be assessed in the view of the new legal landscape.
- Bitcoin generation is done through specialized computers, and miners process bitcoin transactions to keep the network secure. Miners earn transaction fees and bitcoins in exchange for bitcoins mining. Startups are raising funds for bitcoins as well as other currencies through an initial coin offering or an ICO. It is similar to the original public offering or the IPO where the company provides shares to the general person for the first time.
Bitcoin taxation in India
- With 'Rags to Rich' storylines making the rounds around cryptocurrencies, particularly bitcoins, the Facility is seriously considering bringing investors under the tax regime. The Central Board of Direct Taxes (CBDT) has already announced that people who have made money out of Bitcoin must declare and pay the tax in question.
- The Dept is all set to send warning letters to those who deny following the law. The govt is still likely to make Bitcoin totally illegal and is going to wait for recommendations from the committee headed for this reason. Even if it cannot be dismantled entirely, there would be some kind of control board and tax rate bricks.
- 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 finalized, 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 the 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 authorized any entity to deal in Bitcoins and that any investor or trader dealing with virtual currencies “will be doing so at their own risk. RBI forbade cryptocurrencies in 2018 after many frauds. Even so, cryptocurrencies were confirmed legal in India in March 2020. The government holds talks with various ministries to bring into force a law to forbid cryptocurrencies.
- 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 means 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 the Purchasing of Bitcoins: No taxation liabilities purchasing of bitcoins
2. When the Price of Bitcoin is starts increasing: When you hold the Bitcoin, thereafter its prices get increased or rise in your Bitcoin then, you do not pay -any tax till the time you actually sell it off and book the profit or gains. you do not pay any tax till the time you actually sell or transfer it to someone in exchange for any other benefit in cash or kind, it is off and book the profit or gains, irrespective of the magnitude of the appreciation.
3. On sale or exchange of bitcoins: It means that in any of the 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 barter for buying any other thing or paying for any kind of purchase,
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 the lack of any law related to taxation of Bitcoin in the Income Tax Act. It will be determined on the basis of each fact and circumstance. In the case of trading, it will be considered as speculative income and will attract tax as per the 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 the 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 characterized as capital gains.”
If the transaction is not frequent and is in the 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 are 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 the sale of Bitcoins earned and received outside India by Non-Resident: Income from the sale of Bitcoins earned outside India and received outside India will not be taxable in India if you qualify as nonresident 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” that may be 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 that is manufactured, imported or exported, bought, and sold at each purchase point the buyer is entitled to claim input credit
As per my advice, India may put in place a goods-and-services tax on bitcoin purchases.
We can expect some clarity once the Finance Ministry finalizes its opinion on a report on virtual currencies that were submitted to it recently. It would be interesting to see if GST will be applicable or not? Only the future has an 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 than 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.
- Bitcoin in today’s time has the power to enhance the backbone of India's digital infrastructure and to secure all transaction records on the digital network. In this scenario, the levying of taxes on transactions involving cryptocurrency should be considered a welcome move and should not be seen as a limitation. It is a two-way street for crypto transactions to be traced and used lawfully and to generate revenue for the government to be used efficiently. It is also strenuously argued that the use of crypto tax as a policy issue can help choose an ideal ambiance to assure traders that their investment is safe and that the risks trading activities are also mitigated.
- 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 recognized 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.
WHAT ARE THE SERVICES PROVIDE BY RAJPUT JAIN AND ASSOCIATES UNDER TAX COMPLIANCE?
- Rajput Jain and Associates in consultation with Tax Advocate, Chartered Accountants and CPAs provide all the compliance required under Income Tax Act. There are generally 3 types of services related to tax compliance namely –
ADVISORY SERVICE – Advisory services related to providing output or information related to –
- Maintenance and revision of the portfolio or holding related to cryptocurrency.
- Consultation related to various aspects of taxation in relation to a transaction.
- Regular maintenance and revision of documentation required for filing tax returns.
- Proper and accurate computation of the tax liability on such transactions.
COMPLIANCE SERVICE – Compliance management is very crucial and relates to –
- Determination of IT returns applicable to the concerned assessee.
- Proper and accurate reporting of income arising from cryptocurrency transactions.
- Verification of the details of the transaction provided and providing the verification documents to the concerned IT department.
ASSESSMENT SERVICE – Assessment relates to activities determining the actual value of transactions inclusive of various charges paid and thereby determining the exact value of profits arising from such transactions.
- It includes providing a response to the notice received from the tax authorities asking for proof of source of income and the profit calculation criteria.
- Serving as a representative of their client in court hearings.
- Undertaking negotiations for completing the assessment
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