Taxtation of Cryptocurrency in India : Is Bitcoin Trading Taxable In India ?

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Today’s post is based on Taxtation of Cryptocurrency in India.

India keeps oe tenth part of shares in the trading market of $120 billion. The main reason behind this is Bitcoin and Altcoins. Trading percentage of Altcoins are not clear. altcoins today have a market cap of over $92 billion.

The doubts about legal status and regulation regarding cryptocurrencies haven’t stopped investors and traders to invest in cryptocurrencies. The number of cryptomarket traders and seekers are increasing day by day.

in the year of 2017 bitcoin exchange platform, Zebpay was adding around 2500 new users on a daily basis. at a comparison. we found that Indian currency INR was the second best competitor against USD holding 10% shares in all over currencies. T

his demand is not only for Bitcoins but also for its derivatives (altcoins) like Ether, Dash, Monero, and Ripple etc.

so these cryptocurrencies has also given rise to a handful of Indian cryptocurrency exchanges that deal with altcoins apart from the Bitcoin-only exchanges.

Need of Taxing Cryptocurrencies ?

Recently Demonetization take in India. This has given a new birth to all types of the Digital transaction as the government of India is continuously approaching people to go cashless with the name of “Digital India”. Various online payment has been created by government in India such as Bhim App, Phonepe, Freecharge etc.

According to a survey, nearly 400 plus Indian traders do trading on the Indian exchange platform on daily basis.

Highkart.com is the first e-commerce commercial site which directly accepts digital currency and Castle Bloom is the first physical outlet for accepting the digital currency.

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The sale of Bitcoin is increasing day by day without any regulation from the Indian government. These Digital currencies are providing traders more and more profit with a volatile nature. So because of the ever since growth in profit, most of the normal peoples are also investing in this.

The main factor is this that this all trading is going on without under surveillance of government. No calculations and Margin data are available with the government.

Also for the emergence of growth of the economy financial market is a crucial factor. So it will be profitable to tax such high gains for escalating the growth of the economy.

To understand the tax implications of cryptocurrencies you need to understand some important factors which come under Income Tax Act.

                    Factors                                                   Meaning
Business income Profit and gains received from any business carried on by the taxpayer at any time during the financial year.
Capital gains Income which is derived from any ‘Capital asset’ (transferable or transferable)
Capital Assets Any kind of property held by the taxpayer, connected or not connected with his profession.

 

Taxtation of Cryptocurrency in India or Is Bitcoin Trading Taxable In India ?

Now to understand taxations of cryptocurrencies let us take some scenarios.

Scenario 1: received cryptocurrency as payment for the apprehension of Goods and Service.

If the trader receives any payment by cryptocurrency for rendering goods and services civil market value of cryptocurrency received as rendering goods and services will be considered as a sell amount. The civil market value of cryptocurrency and the cost of the arrangement of goods will be considered as the business income for the taxpayer. Let us take an example

Suppose fakre provides a service. He agrees to receive 2 Bitcoins for that service. Suppose the service provided by fakre is of worth 4,00,000 and the price of Bitcoins is 4,50,000 (assumption). Now as he will receive 2 Bitcoin so the total value he will receive is 9,00,000 (4,50,000*2). So now the net profit of 9,00,000 – 4,00,000 = 5,00,000

Now the capital gain is of two types, short-term capital gain, and long-term capital gain. If fakre will hold the cryptocurrency for 36 months or less than that than it will be considered as short-term capital gain. If he holds the cryptocurrency for more than 36 months than it will be considered as long-term capital gain.

In long-term capital gain taxpayer will get the benefit of indexation (Indexation is a technique to adjust income payments by means of a price index).

Now for example, if fakre sold his bitcoin at the price of 5,00,000 per Bitcoin. The total amount he receives is 5,00,000*2 = 10,00,000 The capital gain will be calculated as 10,00,000 – 9,00,000 = 1,00,000 and depending on the period of holding the tax will be calculated on the basis of long-term and short-term capital gain.

Scenario 2: paying the amount by cryptocurrency for receiving goods and services.

There will two cases

  • Capital gains

     Refer Scenario 1

  • Amount of expense

Amount of expense is fair market value of the cryptocurrency at the date of payment.

Let’s take some example to understand this scenario.

Now as fakre avails goods worth 10,00,000 which has been created by paying 2 Bitcoins 5,00,000*2 == 10,00,000. Assuming the cost of gain of 2 Bitcoins is 4,50,000*2 = 9,00,000, So the resultant capital gain will be 10,00,000 – 9,00,000 = 1,00,000 and this amount will be taxed as long-term and short-term capital gain according to the time of hold.

Scenario 3: investing or trading in cryptocurrency

This is easy to understand as compared to other 2 scenarios. takee operation as a ivestment. So now the difference of sold price and purchased price is Capital gain. The difference is Business Income for trading. while it is independent of the period of holding.

Complications in Taxing cryptocurrencies in India ?

There are several acts according to the constitution of India that can use for the governing legality of Bitcoin such as the reserve bank of India Act, 1934, The Securities Contract Act, 1956 and the consumer protection act or the information technology act.

Taxtation of Cryptocurrency in India : Is Bitcoin Trading Taxable In India ?

Is cryptocurrency a capital asset ?

Cryptocurrency is not a capital asset. If the government is going to declare something as capital gains, first of all, it has to be a capital asset and no has declared cryptocurrency as a capital asset (Sec 2(14) of the I-T act).

cryptocurrencies are not capital asset in India. Filing Tax return is Not applicable.

May be someone is trading in cryptocurrency and wants to declare it and pay taxes, the IT Act doesn’t stop you from doing that.  Goverment will consider the profit as Business income.

Filing of Tax Returns in india ?

Filing of a Tax return is a crucial factor in the Indian Tax Act. If the income of an individual is more than 2.5 lakhs than, he or she will have to pay the Tax according to the category. Filing cryptocurrency Tax return is not clear.

when cryptocurrency is the capital asset gain than only can it will come under Tax act.

Some international countries mode on Taxation on Cryptocurrencies?

Jurisdiction Classification   Taxation     Banned Mode of Regulation   Regulated
India Not defined No No Not defined Not defined
USA commodity Yes No Internal Revenue Service Unclear
UK Income Yes No Revenue and customs Brief No
china Commodity Yes Yes Not defined Yes
Australia Income Yes No Income tax assessment act 1997 Yes
Canada Commodity Yes No Revenue agency No
Germany Ordinary intangible asset Yes No German income tax act. No

 

Conclusion

In some leading countries mostly tax is applicable on cryptocurrency, So they are like business income for those countries. Talking about India tax is not applicable on cryptocurrencies. So we can not call Cryptocurrency as Business income in India. 

It seems like that somewhere Indian government is not fully supporting cryptocurrencies. At the same meanwhile they are also not stopping individuals to invest in it. goverment will not ban cryptocurrency in India. There will be some rules and regulation to trade on it.

The reason behind writing the post here is to aware people for tax. I hope this post will help you to understand the taxation of cryptocurrencies in India.

If you have some doubts let me know first in the comment section.

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Cheers!!

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