With the Bitcoin prices are going through the roof, all Bitcoin holders and investors are having a great laugh seeing that the prices are growing like clockwork every day, it’s safe to start thinking about the legal actions that should be taken as soon as anyone wishes to cash it all in. Bitcoin missionaries, it seems, have had enormous success in making people trust in the cryptocurrency. Like every asset, the confidence of investors in Bitcoin is of utmost importance. A whopping 1500 percent rise in its value in less than a year highlights the fact that cryptocurrencies are here to stay and has also become the popular choice for many investors.
Like in many other countries, In India too legal loopholes around the most successful cryptocurrency have opened a Pandora’s Box for tax authorities.
Bitcoin remains in the dark as it is yet to be officially recognized in the country, but the Reserve Bank of India has on three different occasions given out risk notifications against investing in virtual currencies or fiat currencies. In layman terms, there is no index when it comes to the status of cryptocurrencies in India. So the big question is, are the gains from Bitcoin can be taxed?
“Even though Bitcoins are not mentioned in the income tax act, Bitcoins are assets which are normally kept so holder can make a profit from an upsurge in its value. In that sense, they get the definition of capital gains which is a wide definition as per the Income Tax Act,” said Founder & CEO ClearTax, Archit Gupta.
Accordingly, these can be classified as long-term when held for more than three years and short-term when held for less than three years. In case of long-term earnings indexation, interest must be allowed and gains taxed at 20 percent. Short term profits will be taxed as per the relevant income tax slab.
CEO, and Co-founder of Zebpay (a Bitcoin exchange), Saurabh Agrawal agrees, “One should pay tax on profits made from investing in Bitcoin. One should also declare the income while filing taxes for it.”
The complication of taxation of Bitcoin is not that simple either. There has also been a discussion about under which heading, income or profits made from cryptocurrency should come? Answering to the query Gupta says, “If there are too many transactions made in Bitcoins the owner may be listed as a trader and earning will have to be reported as income from a business. In the inadequacy of specific guidance on the matter, some taxpayers may prefer to file this income under the category of fifth head of income which is ‘income from other sources.” It is the category in which residual income, income which cannot be reported under salary, house property, capital gains, business, and profession, is described.
Special Secretary in the Economic Affairs Department and Chairman of the nine-member inter-disciplinary committee, Dinesh Sharma says, “According to the law if an individual makes some money that should be subject to income tax.” Realizing the growing popularity of cryptocurrencies the government formed a committee this year in April to give recommendations for regulating the cryptocurrency market. The announcement is yet to come out. Sharma says, “Die has not been cast out yet, but it is under active consideration.”
Mining, buying and exchanging fiat currencies is not illegal in India, but it is also not accepted by law either. There is a question mark on the taxability aspect too. So if you have been trading or investing to make sure any gains from the sale of Bitcoin is included on your income tax return.