In simple terms, cryptocurrencies refer to digital currencies to buy products and services. This is very much like fiat currencies and used for the transaction. Since their launch, cryptocurrencies have been controversial because of their model of decentralization. What does decentralization mean? There is no intermediary between such transactions. Any banking or financial institution governs such transactions.
Today, we have more than 1500+ cryptocurrencies used in the Indian market. The current digital currency market uses Bitcoin, Ethereum, Dogecoin. Since the lockdown in 2019, the use of cryptocurrencies has increased multifold. There is no legal agency monitoring these transactions. So, if you want to understand bitcoin dominance, you should read further.
Cryptocurrency and its legality in India
It is a fact that the Indian government has not yet legalized cryptocurrency transactions. Multiple discussions on this subject are available for reference. Time and again, discussions on legalizing cryptos have come up. The Reserve Bank of India (RBI) tried to impose a ban on the use of cryptocurrency. But this ban was later reviewed and ruled out by the honorable Supreme Court (SC). SC advised that a crypto ban is a violation of the fundamental rights of an individual.
How taxation applies to income gained from crypto?
RBI is yet to legalize cryptocurrency, and hence there is no escape from tax benefits. Any income earned through cryptocurrency is liable under income tax regulations. It is important to understand the nature of your cryptocurrency investment.
Any sales profit that you keep earning from cryptocurrency investment is taxable under 02 slabs. If you are a frequent trader then it is a business income. And if you are using your income only to invest, then it is a capital gain.
Referring to a recent interview by Pankaj Mathpal, it is essential to understand the legal angle of crypto investment. Transactions using cryptocurrencies are not illegal. Hence, it is important to bring clarity to the declaration while filing ITR. We have two options – one way is to go ahead and declare the income as a business income. Another option is to declare cryptocurrency as income from another source. This is by far the safest method of income tax declaration.
To make it simple, let us look at the tax implications involved while declaring the income.
Income classified and declared as Capital Gain
If you are holding the crypto asset for less than 36 months / 03 years, then the income is taxable under capital gain (short term). But, if you are holding the crypto asset for the period beyond 36 months / 03+ years, then such income will fall under long-term investments. In such cases, the income from such a source will be taxable at 20%.
Income classified and declared as Business Income
In case of declaring your income under the Business Income category, then consider the Goods and Service Tax (GST). The implications need a careful study. When declared as business income, you also have the benefit of claiming all direct and indirect expenses as deductions. The profits that you earn through this sale are an extra income and are applicable as per tax slabs.
Income classified and declared as Other Income
You also have an option to declare your profits and income from cryptocurrency as income from other sources. This is possible for you to do so while filing your ITR and accordingly taxed. Yet another option here is to declare this income as speculation business income. This allows for taxable under the highest slab.
As of date, we do not have any clarification or official announcement on tax exemptions. As per the current trend, all income generated through the sale of cryptos is taxable as per the IT act. The available option is for the investor to go ahead and declare your investment. This could be either classified as capital gains or an ordinary business income.
Irrespective of any clarifications from IT, it is important to report your profits. The ITR filed by you need to include your profits from cryptos. This will help assign appropriate tax slabs and tax paid to the government as applicable.
Bitcoins are gaining popularity in India. This makes it imperative to have effective laws to regulate it. In the coming years, we can also expect changes in the current rule. The government may be forthcoming to significantly regulate it.
This is a third-party post. To publish your posts with us, please write to team@vcbay.com
