In March 2020, India’s Supreme Court struck down a 2018 Circular by the Reserve Bank of India forbidding banks from dealing in cryptocurrencies, prompting investors to pile into the market. The court ordered the government to take a position and draft a law on the matter.

As per recent news articles it is estimated that there more than 10 Lakh Indian Investors holding crypto assets of more than Rupees 10,000 Crores collectively and more than 300+ start-ups are working on blockchain based technologies and crypto assets. The finance minister in her recent interviews has suggested that the government would take a calibrated approach in regulating crypto assets market in India.

The Global Crypto market is currently valued at US Dollars 2.23 Trillion and bitcoin being priced at US Dollars 61,000. This has led to massive wealth creation for crypto assets investors both in India and Globally. Off Course, where there is wealth creation, there comes the role of taxmen.

In this article we would like to address common questions faced by the crypto assets investors regarding the taxation of Cryptocurrency in India, in absence of the clear regulations under the Income Tax Act, 1961.

Is Bitcoin and Other Cryptocurrencies taxable in India?

Yes, any profits or gains on Bitcoin and Other Cryptocurrencies are taxable as per the Income Tax Act, 1961. The questions which arise are how are they taxable and under which heads of Income.

Section 2(24) of the Income Tax Act, 1961 is an inclusive definition which includes profits or gains from business or profession and capital gains.

Section 28 of the Income Tax Act, 1961 states that any profits of gains from business or profession are chargeable to taxation under the head “Profits or Gains from Business or Profession”.

Section 2(13) of the Income Tax Act, 1961 provides definition of the word “business” to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.

Section 2(14)(a) of the Income Tax Act, 1961 provides definition of the word “Capital Asset”  states that property of any kind held by an assessee, whether or not connected with his business or profession is to be considered a capital asset.

Section 45(1) of the Income Tax Act, 1961 states that profits or gains arising transfer of any capital assets during the previous year are subject to taxation under the head “Capital Gains”.

In absence of the specific regulations related to cryptocurrencies the question arises whether to treat the cryptocurrencies as property of any kind and apply taxation under the head of “Capital Gains” or treat same as trading and apply for taxation under the head of “Profits or Gains from Business or Profession”.

The following table would help you determine the applicable head.

VARIOUS SCENARIOSCATEGORYHEAD OF INCOMEHOLDING PERIOD
One Time InvestorInvestorCapital Gains/LossesMore Than 36 Months
One Time InvestorInvestorCapital Gains/LossesLess Than 36 Months
Step Up/Multiplier InvestorInvestorCapital Gains/LossesMore Than 36 Months
Step Up/Multiplier InvestorInvestorCapital Gains/LossesLess Than 36 Months
Casual TraderInvestorCapital Gains/LossesMore Than 36 Months
Casual TraderInvestorCapital Gains/LossesLess Than 36 Months
Regular/Everyday TraderTraderBusiness Profit/LossesNot Applicable
Margin TraderTraderSpeculative Profit/LossesNot Applicable
*The circular no. 4/2007, dated 15-6-2007 issued by the CBDT can be considered while determining distinction between investment and stock in trade.

However, it is always better to approach your chartered accountant for best of advice in these matters.

If you are trading using margin options, it would fall under the speculative income category under business head. Losses of any such margin trades can be setoff only against any other speculative income, or can be carried forward for four years and set off only against speculative income.

What is the rate of Taxation?

Head of IncomeRate of Taxation
Profits of Gains from Business or ProfessionCompany – 25.17%
Individual, HUF or AOP/BOI – Subject to Tax Slabs
Firm, LLP or Any Other Legal Entity – 30.90%

*Surcharge on tax to be considered as per respective taxable income
Capital GainsShort Term Capital Gains – Subject to Tax Slabs or 25.17% in case of a Company
Long Term Capital Gains – 20%

*Surcharge on tax to be considered as per respective taxable income

What is the taxability of Cryptocurrencies, being accepted as fees of supply of goods or services?

Accepting Cryptocurrency as part of your fees/trading of goods/any other services is not regulated at that moment, however there are no precedents to deny that opportunity. However, make sure the transactions are recorded along with the exchange rate at the time of acceptance and raising of invoice. Vis-à-vis with using cryptocurrency for making payments.

Goods and Service Tax is needs to be levied as and when applicable on respective supply of goods or service.

Any gain/loss on Change in Exchange Rate will be taken to the business profit and loss account as an expense or income, and should be treated similar to dealing with any other foreign exchange transactions.

What are some of the good practices to follow as far as trading in cryptocurrencies is concerned from a taxation point of view?

• Have a track of all the Purchases and Sales made by you, along with transaction details, preferably in the following format.

DateBuy/SellQuantityPrice Per UnitGross PriceTransaction FeesNet PriceTransaction IDTrading Platform

Taxation is all about proper declaration of transactions done by you, whether its resulted in profit/loss, hence proper tracking of information will be able to help you in declaring sufficient data while filing return of income, either by yourself or by your chartered accountant.

Documentation is the most important aspect of taxation and accounting. Regularly extract and save the transactions data from the trading platform you are dealing/trading with.

Are there any practices that you should avoid as far as trading in cryptocurrencies is concerned from an Indian taxation point of view?

• Not Approaching an expert.
• Not Maintaining Track of all the transactions done in cryptocurrencies.
• Not Declaring the amount of gains/losses in the income tax returns.
• Declaring gains/losses under the wrong head of income.
• Not Choosing the right Form for filing the Income Tax Returns.


Any more questions Contact Us.

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