Bitcoins Taxability in India
Hi Reader, in this Article we discussed about Bitcoins Taxability in India i.e. how to pay tax on Bitcoins transaction in India. Before we start let’s understand the basis concept about Bitcoins.
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, Dogecoin, Shiba Inu and Ripple Etc. Crypto currencies are digital money with certain value. Bitcoins are 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.
Crypto Currencies Legality: –In India Crypto Currencies are not issued or regulated or controlled by any government or central bank or Specific body like the RBI which control physical Currency in India. Crypto Currencies 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, Crypto Currencies have given an unexpected return of more than 1000 percent. Due to such extraordinary return, the currency has caught the attention of many in India.
How to Get Crypto Currencies: –
- Purchase from Crypto Exchanges: –A Crypto exchange is a business platform that facilitates exchange of Crypto Currencies to another currency. A person can get Crypto Currencies just like Bitcoins by purchasing them from Crypto Exchange. Some of Crypto Exchanges in India are WazirX, Coinsecure, Zippay, Unocoin and Coinbase etc. A person can easily download the crypto exchange apps from the Google play Store or App Store.
- Receiving of Crypto Currencies 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 Crypto Currencies on sale of goods or services.
- Mining: – Mining is a record keeping service or process of making computer hardware do mathematical calculations for the Crypto Currencies just like Bitcoins to confirm transaction and increase security. As a reward for their services, Crypto or 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. However, one need to declare and pay tax on profit made from investing in Bitcoins. Income definition u/s 2(24) of the income tax act includes every kind of income unless clearly exempt. One has to pay tax on gain on transaction of Crypto Currencies or bitcoins to avoid in future conflict with tax department. Taxability of Bitcoins under the income tax is not simple.
Taxable events in case of Crypto Currencies:-
Situation where tax to be paid on income from Crypto Currencies transaction.
| Particular | Taxable Events |
| Purchase of Crypto by Paying Money | No Tax Event |
| Increase in Crypto Value | No Tax Event |
| Exchange of Crypto with any currency | Taxable Event |
| Transfer of Crypto to Other Person | Taxable 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 Crypto Currencies just like Bitcoins may come under the following three head of income.
- Income under the head of business,
- Income under the head of capital Gain,
- 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 Crypto trading then profit or loss arises will be taxable under the head of Business income. In that case profit arising from such business will be taxable as per the Individual slab rates.
Income Taxable as Capital Gain: – If a person buys Crypto Currencies just like bitcoins for the purpose of investment then it should be treated as Capital Assets. Then any gains on transfer of Crypto Currencies just like 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.
Capital Gain are two types, 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 should be Long Term Capital Gain and on the other hand if investment holding period is less than three years then it should be Short Term Capital Gain.
For example: If one purchase Bitcoins on 15-05-2018 and transfer on or before 14-05-2021 then gain from the transfer will be treated a Short Term Capital Gain and if Bitcoins transfer on or after 15-5-2021 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 Crypto Currencies just like Bitcoins are not specifically mentioned in the Indian Income Tax Act. The Income tax department may not consider crypto currencies as capital assets and hence the provision of capital gains would not apply. Income tax authority may choose to tax the gains from Crypto Currencies 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.
Also See, “Income Tax Slab for AY 2021-22”
Also See. “New Form 3CD in Excel Format”
Also See, “GST Annual Return Form in Excel Format”
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