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How Bitcoins Are Taxed In India?

Mr. C.S. Sudheer | Updated On Tuesday, April 24,2018, 10:53 AM
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How Bitcoins Are Taxed In India?

 

 

Cryptocurrencies are the new rage in India and the World. Everyone wants to invest in Cryptocurrencies. Some of the popular cryptocurrencies are Bitcoins, Ethereum, IOTA, Bitcoin Cash, Dash, Litecoin and Ripple. Bitcoins are the most popular among all cryptocurrencies. A Bitcoin is a cryptocurrency which can be stored electronically. Its creator is believed to be Satoshi Nakamoto.  It came into existence on January 2009.

What’s special about the Bitcoin is that it’s not controlled or regulated by any country or Government or bank. Bitcoins run on a technology called block chain technology. This is nothing but a shared public ledger. Every single confirmed transaction anywhere in the World is recorded in the block chain.

According to rules that make Bitcoins work; only 21 Million bitcoins can ever be mined. The process of making Bitcoins is called mining. This makes Bitcoins rare and their value increases if there is a huge demand for them.

So why is the Government chasing Bitcoins? The IT Department believes that Bitcoins are used for money laundering and tax evasion. A few days ago, the IT Department began a nationwide crackdown on Bitcoin exchanges. The IT Department wants to establish the identity of investors/traders, parties involved, bank accounts used and all transactions undertaken by Bitcoin traders in India.

Want to know more on tax planning? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.

 

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How Bitcoins Are Taxed In India?

 

The IT Department studied Bitcoins and has arrived at a method of taxing them. If you invest or trade in Bitcoins, you must pay taxes on any gains you have made.

 

1. How are Bitcoins classified for taxation?

 

Taxation on Bitcoins depends on how the income is made from Bitcoins. Gains/Profits arising out of trading Bitcoins are called Business income. If you hold Bitcoins as an investment, any gains/profits will be treated as Income from other sources.

Not able to follow...I will explain. As per Indian tax laws, the income you earn is taxed under 5 different heads, irrespective of the form it has been received. These are:

 

  • Income from Salary
  • Income from House Property
  •  Income from Profits and Gains of Business or Profession
  •  Income from Capital Gains
  •  Income from Other Sources.

 

If you buy/sell Bitcoins regularly (trade in Bitcoins), then any gains/profits you make is business income and losses are called business losses. You are taxed under the head, Income from Profits and Gains of Business or Profession. If you invest in Bitcoins, then Bitcoins are treated as capital assets. If you hold Bitcoins for a longer duration and then sell, any gains/profits are called capital gains and are taxed under the head, Income from capital gains.

 

SEE ALSO: Why you should not invest in Bitcoins?

 

2. How Bitcoins are taxed in India?

 

Most citizens in India invest in Bitcoins to profit from price rise. Now, Bitcoins become Capital Assets under Section 2(14) of the income tax act. Any profits you make by selling Bitcoins are called capital gains.

If you hold Bitcoins for less than 3 years (36 months), any profits/gains are called short term capital gains (STCG). Your short term capital gains are taxed as per the income tax slab you fall under. You also have surcharge + education cess.

If you stay invested in Bitcoins for more than 3 years (36 months), any profits/gains are called long term capital gains (LTCG). LTCG is taxed at 20% + surcharge + cess,  with the indexation benefit. Indexation is the process that takes into account, inflation from the time you bought the asset to the time you sell it. You pay tax only on the real component of gains.

Let's say you are a blogger or a freelancer who receives payment for services rendered in Bitcoins. The Bitcoins are treated just like income from any legal currency. You have to pay tax on the income just like Income from Profits and Gains of Business or Profession.

 

SEE ALSO: Why hackers like payment in Bitcoins?

 

Bitcoin exchanges in India ask you to comply with KYC (Know Your Customer), before you start buying Bitcoins on their platforms. You would have to submit PAN (Permanent Account Number), your bank account details and Aadhaar Number, so that the Income Tax Department is satisfied. It would be wise to take professional help when you file ITR, if you have any gains from Bitcoins. Be Wise, Get Rich.

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Article Author

Mr. C.S. Sudheer

Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.

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