Bitcoins Taxability in India

Bitcoins Taxability in India

Hi Reader, in this Article we will understand the Bitcoins Taxability in India i.e. how to pay tax on Bitcoins in India. Before we start we have to understand that what Bitcoins is.

Bitcoins – Bitcoins is virtual currency and considered more secure than real money. Bitcoins was the first ever crypto currency created in the year 2009 and after that there has been a rapid increase in the number of crypto currency such as Litecoin, Ethereum, Dash, and Ripple Etc. Today Bitcoins is the most widely used and accepted digital currency.

Crypto currencies just like Bitcoins are based on block chain technology. It is a system of transfer and store information or data that is generated while transacting in a crypto currency. Block chain technology helps to evade any possibility of fraud.

Bitcoins Legality: –In India Bitcoins is not issued or regulated or controlled by any government or central bank or Specific body like the RBI which control physical Currency in India. Bitcoins in India are unregulated but are not illegal. However, RBI time to time stated the risks which are associated with virtual currencies and cautioned that people dealing in it should do so at their own risks. In the recent past Bitcoins has given an unexpected return of more than 900 percent. Due to such extraordinary return, the currency has caught the attention of many in India.

How to Get Bitcoins: –

  1. Purchase from Bitcoins Exchanges: –A Bitcoins exchange is a business platform that facilitates exchange of Bitcoins for another currency. A person can get Bitcoins by purchasing them from Bitcoins Exchange. Some of Bitcoins Exchanges in India are Coinsecure, Zippay, Unocoin and Coinbase etc.
  2. Receiving of Bitcoins in exchange of Goods and Services: – Currently in India receiving of Bitcoins in consideration of selling goods and services is not found but there are some few businesses who accept Bitcoins on sale of goods or services.
  3. Mining: – Mining is a record keeping service or process of making computer hardware do mathematical calculations for the Bitcoins network to confirm transaction and increase security. As a reward for their services, Bitcoins Miners can collect transaction fees for the transaction they confirm. Bitcoins mining is not an easy way to make money.

Bitcoins Taxability in India: –

Bitcoins Taxability In India is not specifically mentioned in the Indian Income Tax Act but one need to declare and pay tax on profit made from investing in Bitcoins since definition of income u/s 2(24) of the income tax act includes every kind of income unless clearly exempt. One has to pay tax on gain of Bitcoins to avoid future conflict with tax department. Taxability of Bitcoins under the income tax is not simple.

When will Bitcoins tax Liability Arise:-

Situation where tax to be paid on income from Bitcoins.

ParticularTaxable Events
Purchase of Bitcoins by Paying MoneyNo Tax Event
Increase in Bitcoins ValueNo tax Event
Exchange of Bitcoins with any CurrencyTaxable Event
Transfer of Bitcoins to other personTaxable Event

 

Under which Head Income from Bitcoins will be taxable:-

There is also a debate that under which head income from crypto currency just like Bitcoins should fall. There is five head of income under which one has to pay income tax. Out of five head of income taxability of Bitcoins may come under the following three head of income

  1. Income under the head of business,
  2. Income under the head of capital Gain
  3. Income under the head of other sources.

Taxability of Bitcoins will be determined on the basis of facts or circumstance of each case.

Income Taxable under Head of Business: – If a person doing Bitcoins trading then profit or loss arises will be taxable under the head of Business income. In this case profit arising from such business will be taxable as per the Individual slab rates.

Income Taxable as Capital Gain: – If a person buys Bitcoins for the purpose of investment then it should be treated as Capital Assets. Thus any gains on transfer of Bitcoins should be taxed as Capital Gain. For example, if a person purchase Bitcoins at the rate of INR 20,000 and at the time of exchange Bitcoins is valued at INR 25,000 then his capital gain should be INR 5,000.

There is two type of Capital Gain, Short Term Capital Gain and Long Term Capital Gain. For Bitcoins purpose if one holds investment in Bitcoins for more three years from the date of its purchase then it is Long Term Capital Gain and on the other hand if investment holding period is less than three years then it is Short Term Capital Gain.

For example: If one purchase Bitcoins on 15-05-2017 and transfer on or before 14-05-2020 then gain from the transfer will be treated a Short Term Capital Gain and if Bitcoins transfer on or after 15-5-2020 i.e. after the holding period of more than three years then gain from the transfer will be treated as Long Term Capital Gain.

Short term capital Gains will be taxed as per the applicable income tax slab. For example, if you fall under the 30 percent slab then gain from Bitcoins will be taxed at the rate of 30 percent or if you fall under the 20 percent slab then gain from Bitcoins will be taxed at the rate of 20 percent.

Long term capital gains will be taxed at a flat rate of 20 percent after giving the benefit of indexation.

Income taxable under other sources: –Since tax on Bitcoins is not specifically mentioned in the Indian Income Tax Act. The Income tax department may not consider Bitcoins as capital assets and hence the provision of capital gains would not apply. Income tax authority may choose to tax the gains from Bitcoins under the head “Income from other sources.”

If Gain from transfer of Bitcoins is taxable under the head “Income from other sources, the taxpayer will have to pay tax as per the applicable income tax slab.  For example, if you fall under the 30 percent slab rate then gain from Bitcoins will be taxed at the rate of 30 percent or if you fall under the 20 percent slab rate then gain from Bitcoins will be taxed at the rate of 20 percent.

For any query you can write at taxhouseindia@gmail.com Before making any decisions do consult with your professional or tax advisor.

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