How to Tax Bitcoins in India, a step by step method

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Bitcoin trading is happening from quite some time which Government refused to acknowledge, however the Bitcoin bubble is now screaming too loudly to ignore.

The concept of bitcoins being quite new to the Indian market, apparently the government has not yet brought taxability of bitcoins into the statute books. At the same time, levy of tax on bitcoins cannot be ruled out because the Indian income tax laws has always sought to tax income received irrespective of the form in which it is received.

The price of crypto-currency has surged rapidly in recent times, trespassing several thresholds one after the other. First it surged past $5,000, then $10,000, followed by $17,000 before touching $18,722 at the time of writing this post. Notwithstanding the sceptics’ warnings on the legitimacy and the future of bitcoins, the crypto-currency traders have been bullish.

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Bitcoins in India are unregulated but are not yet illegal. However, the RBI has on occasion cautioned investors of inherent risks.

Therefore, the possibility of tax on bitcoins can be looked at under the following circumstances:

TAXABILITY OF BITCOINS

Taxation on bitcoins will be applicable depending on how you treat income from bitcoins, based on the frequency of transaction.

Business Income

If the transactions in bitcoins are substantial and frequent, it could be said that the individual is trading in bitcoins. In this case, income on sale of bitcoins would be a business income, to which the applicable slab rate of income tax would apply.

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Other Sources

In case the gains arise due to increase in prices while you hold it as an investment, the gains will be income from Other Sources.

Capital Gains

If you hold a bitcoin for longer duration and then sell it, the profit will attract capital gains tax. Bitcoins will be treated as capital assets if you buy a bitcoin for investment purpose.

Short-term capital gains are taxed at the applicable I-T slab rate, which for those with a taxable income of more than Rs 10 lakh is 30% plus applicable surcharge and cess. On the other hand, long-term capital gains (LTCGs) attract a tax rate of only 20%. The duration for Long term assets is 36 months. Bitcoins held for not more than 36 months will be considered short-term capital assets (STCG).

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GOVERNMENT’S POSITION

It seems Government is not yet very clear on the future of crypto-currencies. Finance minister Arun Jaitley on November 30 said that recommendations are being worked at. “The government’s position is clear, we don’t recognise this as legal currency as of now,” Jaitley said when asked whether the government has taken any decision on crypto currency.