Legal tender status has not yet been granted to bitcoin and other cryptocurrencies in India. However, the fast emerging trading platforms in the country is an indication that number of users investing in the virtual tender is increasing.
Where there is an investment, there is an Income tax liability. But, since there are no clear income tax rules regarding Bitcoin and cryptocurrencies, it is not a good choice to pay income tax on the investment gains through the cryptocurrency.
Except the explicitly exempted, all incomes are liable to income tax. So, the investors also have to pay taxes on cryptocurrency gains as well. As per experts from tax and investment, the investors should pay taxes on the cryptocurrency profits after the complete understanding of the nature of the investment.
Amit Gupta, Co-founder and MD at SAG Infotech on speaking to the applications of the income tax rule to cryptocurrency, said, “As per regular income tax parlance, the taxation on cryptocurrencies should depend on the nature of investment, whether it is held in the form of currency or in the form of assets.”
“Profits from the sale of cryptocurrency can be taxed as business income if traded frequently, or as capital gains if held for investment purposes. However, it needs to be noted that, if considered as business income, then the profit can be taxed as per the applicable income tax slab rates, but if it is held for investment purpose, then taxation can be the same as tax gain in the form of capital gains”.
The Managing Director of the SEBI registered income tax solution firm said, elaborating upon the capital gain tax levied on cryptocurrency profit that “If taxpayers utilized their investments in between 3 years, then short-term capital gains according to the relevant income tax slabs will be applicable. However, if the redemption happens post-3 years of investment, then it can be treated as long-term capital gain and can be taxed at 20 per cent with indexation benefit.”
Pankaj Mathpal, founder & MD at Optima Money Managers, highlighting this legal angle involved in cryptocurrency transactions, said, “Cryptocurrency is not a legal tender in India but it doesn’t mean cryptocurrency transaction is illegal. So, while filing income tax on profit from cryptocurrency investments, one has two options — either prove that your income from cryptocurrency is a business or an asset class income or just choose the safest mode of income from other sources. My advice to the cryptocurrency investors is to go by the safest mode and file cryptocurrency income under income from other sources.”
