How you guys are mentioning earning from bitcoin in ITR filing ?

[dashingriddler]

Tell your tax guy you traded in an asset called Bitcoin, and that you need to show your profits as Capital Gains. Then give him your transaction history, including all Sells you did in the last financial year. If he still does not get it, tell him to think of it as a new stock scrip called BTCX and to use your txn history for comptutation. If he still does not get it, run from that guy.

I think, by trade, it means buying & selling. But, I never buy. I earn and sell. So, I guess, capital gain does not apply to me. Everything that I have sold needs to be shown as earning. By transaction history, do you mean the blockchain Tx details ? That is Hebrew to him. I like your idea of showing it as an asset. I am planning to show it to him as 'Earning from Digital Asset Sales' and provide bank transaction details against those sales.

From the research paper by Nishith Desai there is some basis for considering Bitcoin profits as capital gains. That much is the easy part.  When you obtained the asset (earned / bought / mined / begged / borrowed / stole) there is a "cost of acquisition" in INR. When you sell there is a "Sale Price". The difference is your profit (Capital Gains) and taxed. That's the simplest principle. By 'Transaction History' I mean list down all the Bitcoin you sold in the last financial year. Then tell list down how you obtained those bitcoin, along with acquisition costs. Then you find the difference.

If you have mining "income" things get far more interesting, and you just need to apply some common sense in terms of what you can justify to the IT department if you are called for audit. For mining, cost of server and electricity may be considered as cost of acquisition - but god knows what the IT department will think of it... That is beyond the scope of this discussion as there are no precedents or authoritative rules on this. Safe to say this is a gray area and you are really on your own.

Disclaimer: I am not a qualified tax consultant.

Then as per your calculation what i earn from faucets , referrals and playing games and earn bitcoins which i collect it in my online wallet and after some days when i get enough bitcoins i sell them. Then i have to pay taxes for that also.

What if i dont sell them and go for online purchase products through Bitcoins , will it be taxable.

Yes that is a taxable income.

If you keep the bitcoins, then you pay taxes considering the price of Bitcoin when you got them. Later on if you sell the day for higher rate, you pay taxes for the difference amount. If you buy a product online then it is same as selling the bitcoin for what ever price and you still need to pay taxes.

I beg to disagree with the second part. If someone keep their coins and purchase items/services with that, then it probably is not taxable, at least as per current taxation laws which does not specifically say anything about bitcoin. The seller will then be responsible for paying tax for his acquired bitcoin, when he tries to encase them. Hoarding & using bitcoin is probably not taxable, but selling is taxable.

p.s. I am not a tax specialist. Above statement is given on my general understanding of Indian taxation laws. Hence, those might be inaccurate. It is better to consult a specialist for accurate evaluation.

I m hoping you are talking about income tax as well. You may get a better context if you replace bitcoin with gold and analyse the situation.

[kdhilip75]

Tell your tax guy you traded in an asset called Bitcoin, and that you need to show your profits as Capital Gains. Then give him your transaction history, including all Sells you did in the last financial year. If he still does not get it, tell him to think of it as a new stock scrip called BTCX and to use your txn history for comptutation. If he still does not get it, run from that guy.

I think, by trade, it means buying & selling. But, I never buy. I earn and sell. So, I guess, capital gain does not apply to me. Everything that I have sold needs to be shown as earning. By transaction history, do you mean the blockchain Tx details ? That is Hebrew to him. I like your idea of showing it as an asset. I am planning to show it to him as 'Earning from Digital Asset Sales' and provide bank transaction details against those sales.

From the research paper by Nishith Desai there is some basis for considering Bitcoin profits as capital gains. That much is the easy part.  When you obtained the asset (earned / bought / mined / begged / borrowed / stole) there is a "cost of acquisition" in INR. When you sell there is a "Sale Price". The difference is your profit (Capital Gains) and taxed. That's the simplest principle. By 'Transaction History' I mean list down all the Bitcoin you sold in the last financial year. Then tell list down how you obtained those bitcoin, along with acquisition costs. Then you find the difference.

If you have mining "income" things get far more interesting, and you just need to apply some common sense in terms of what you can justify to the IT department if you are called for audit. For mining, cost of server and electricity may be considered as cost of acquisition - but god knows what the IT department will think of it... That is beyond the scope of this discussion as there are no precedents or authoritative rules on this. Safe to say this is a gray area and you are really on your own.

Disclaimer: I am not a qualified tax consultant.

Then as per your calculation what i earn from faucets , referrals and playing games and earn bitcoins which i collect it in my online wallet and after some days when i get enough bitcoins i sell them. Then i have to pay taxes for that also.

What if i dont sell them and go for online purchase products through Bitcoins , will it be taxable.

Yes that is a taxable income.

If you keep the bitcoins, then you pay taxes considering the price of Bitcoin when you got them. Later on if you sell the day for higher rate, you pay taxes for the difference amount. If you buy a product online then it is same as selling the bitcoin for what ever price and you still need to pay taxes.

I beg to disagree with the second part. If someone keep their coins and purchase items/services with that, then it probably is not taxable, at least as per current taxation laws which does not specifically say anything about bitcoin. The seller will then be responsible for paying tax for his acquired bitcoin, when he tries to encase them. Hoarding & using bitcoin is probably not taxable, but selling is taxable.

p.s. I am not a tax specialist. Above statement is given on my general understanding of Indian taxation laws. Hence, those might be inaccurate. It is better to consult a specialist for accurate evaluation.

I m hoping you are talking about income tax as well. You may get a better context if you replace bitcoin with gold and analyse the situation.

now it is getting more confusion to me whether i am liable to pay tax or not , what if i dont show anything about my earnings from faucets , referrals and playing games , after that i purchase items through that bitcoins and i dont show anything to Income Tax , what will happen if i dont show any details in my Income Tax. As what ever i earned is through faucets , referrals and they wont share any details with income tax department. please help me what to do

[adv.kanishk]

Wow guys great to read all the answers of the members here. just to sum the whole things up the earning from buying/selling of bitcoins needs to be treated differently and the earnings from mined bitcoin needs to be treated separately. People who are providing their services in lieu of bitcoin have different tax exposure from the people who are selling goods for bitcoins because of the definitions as to what is considered as considerations in both indirect taxes i.e. VAT and Service Tax. Vat will be even more complex as it varies from state to state.

Regards
--
Kanishk Agarwal
Advocate
CriTaxCorp
Criminal-Taxation-Corporate
www.critaxcorp.com
+919971666252

[dashingriddler]

Wow guys great to read all the answers of the members here. just to sum the whole things up the earning from buying/selling of bitcoins needs to be treated differently and the earnings from mined bitcoin needs to be treated separately. People who are providing their services in lieu of bitcoin have different tax exposure from the people who are selling goods for bitcoins because of the definitions as to what is considered as considerations in both indirect taxes i.e. VAT and Service Tax. Vat will be even more complex as it varies from state to state.

Regards
--
Kanishk Agarwal
Advocate
CriTaxCorp
Criminal-Taxation-Corporate
www.critaxcorp.com
+919971666252

Thanks for the info. Can you throw some light on just the income tax for the earnings obtained through faucets and bitcoin trading?

[Wapinter]

Then tell list down how you obtained those bitcoin, along with acquisition costs.

How do I list acquisition costs for bitcoins, which are earned from signature campaign, giveaways, ad space selling, social media promotion ?

Think of it as a 2 step process. You first earn money through signature campaigns (which has an INR value) and pay tax on that.
When you sell the bitcoins later, you have capital gains or loss. The INR value of the bitcoins when you earned them becomes your acquisition cost.

The value of btc keeps changing in terms of INR or USD everyday,how to keep track of all the bitcoin [there value in INR] one gets everyday from various sources

[polynesia]

Then tell list down how you obtained those bitcoin, along with acquisition costs.

How do I list acquisition costs for bitcoins, which are earned from signature campaign, giveaways, ad space selling, social media promotion ?

Think of it as a 2 step process. You first earn money through signature campaigns (which has an INR value) and pay tax on that.
When you sell the bitcoins later, you have capital gains or loss. The INR value of the bitcoins when you earned them becomes your acquisition cost.

The value of btc keeps changing in terms of INR or USD everyday,how to keep track of all the bitcoin [there value in INR] one gets everyday from various sources

That is the tough part. 

[Wapinter]

Then tell list down how you obtained those bitcoin, along with acquisition costs.

How do I list acquisition costs for bitcoins, which are earned from signature campaign, giveaways, ad space selling, social media promotion ?

Think of it as a 2 step process. You first earn money through signature campaigns (which has an INR value) and pay tax on that.
When you sell the bitcoins later, you have capital gains or loss. The INR value of the bitcoins when you earned them becomes your acquisition cost.

The value of btc keeps changing in terms of INR or USD everyday,how to keep track of all the bitcoin [there value in INR] one gets everyday from various sources

That is the tough part. 

I think in absence of any regulations about btc,the best approach is not to mention bitcoin in your documents at all.For tax purpose,show it as income from selling digital goods or services

[RocketSingh]

Then tell list down how you obtained those bitcoin, along with acquisition costs.

How do I list acquisition costs for bitcoins, which are earned from signature campaign, giveaways, ad space selling, social media promotion ?

Think of it as a 2 step process. You first earn money through signature campaigns (which has an INR value) and pay tax on that.
When you sell the bitcoins later, you have capital gains or loss. The INR value of the bitcoins when you earned them becomes your acquisition cost.

The value of btc keeps changing in terms of INR or USD everyday,how to keep track of all the bitcoin [there value in INR] one gets everyday from various sources

That is the tough part. 

I think in absence of any regulations about btc,the best approach is not to mention bitcoin in your documents at all.For tax purpose,show it as income from selling digital goods or services

At the time of ITR filing, there is no option to mention bitcoin either. Better report it as a digital asset selling, but keep a track to yourself, so that, in case of any enquiry, you may show the actual bitcoin tx for sales.

[polynesia]

At the time of ITR filing, there is no option to mention bitcoin either. Better report it as a digital asset selling, but keep a track to yourself, so that, in case of any enquiry, you may show the actual bitcoin tx for sales.

There is a debate on whether it should be declared as foreign assets.
https://bitcointalk.org/index.php?topic=1181314.0