Bitcoin and cryptocurrencies opened a lot of opportunities for investors and introduced a revolutionized idea of payment. In light of this, existing tax laws in India have not considered eccentric ideas like cryptocurrency.
With the lack of taxation on cryptocurrency, governments lose possible tax revenues from these transactions. India has proposed a tax system to regulate bitcoin transactions.
One of the general principles of taxation declares that everything is taxable unless exempted by law. However, Indian laws have not yet defined the tax consequences of virtual currencies. Chartered accountants encourage to report income from cryptocurrency transactions.
Individual Taxpayers
The Income Tax Department (I-T) of the Government of India released a tax notice on the tax obligations for cryptocurrency transactions.
Individuals with gains arising from cryptocurrency transactions should be reported in the tax return with supporting documentation. Capital gains arising from cryptocurrency transactions can either be subject to short-term or long-term gains.
Investments, including virtual currencies, will be considered long-term if it is held for more than three years. Any investment below the three-year mark is deemed to be short-term.
Long-term gains shall be taxed at 20 percent. However, the tax system allows “indexation” or inflation adjustment, which would decrease tax liability.
Short-term gains are added to the individual tax payer’s income, and it shall be ultimately subject to progressive rates (or slab rate) in the tax table.
Seller of Securities
For sellers of securities, including Bitcoin and other cryptocurrencies or traders, the tax consequence is not too complicated. Any income derived from the sale of cryptocurrencies is part of income.
The I-T as per provision of the tax law of India will allow certain deductions to gross income, and the tax shall be computed using the progressive rates (or slab rate) in the tax table.
However, reaching the Rs2 crore mark would require businesses to seek the audit of chartered accountants.
Other Provisions
Bitcoin or other cryptocurrency derived from mining shall not be subject to capital gains tax. Since it is “mined,” it is considered as a self-generated capital asset, and the cost of its acquisition is unknown. Thus, the computation of capital gains is defeated.
Bitcoin held as investment shall qualify for tax on capital gains on either long-term or short term.
Bitcoin held-for-trading and eventually exchanged for real currency shall be considered as income from business and subject to the individual slab rates.
Bitcoins received as payment from the sale of goods and services still constitutes income, and it must be reported as profit from the business.
