How profit from Bitcoin will be taxed in India?

[reeya goradia]

How profit from Bitcoin will be taxed in India?

Bitcoin is the buzzing word on social media and all want to become rich by investing in the crypto currency. Many Indian despite RBI warning has invested in to Bitcoin few months back and have made handsome gains. The question now remains is the gains on sale of Bitcoin is taxable under Income Tax Act? If yes then it shall be taxed as business Income or Capital Gains or something else ?

Any gain on Bitcoin is taxable as any gain on account of Bitcoin exchange is certainly (100%) taxable because the definition of income u/s 2(24) under Income Tax Act is inclusive, which mean every kind of income unless clearly exempt .

When will Bitcoin Tax Liability Arise

The buying and holding of Bitcoin wont attract any Income tax liability. The selling of Bitcoin will lead to profits or gains which will be considered as Income and taxed in India

Speculative Income

This is debatable on account of lack of any law related to taxation of Bitcoin in the Income Tax Act . It will be determined on the basis of each facts and circumstances. In case of trading it will be considered as speculative income and will attract tax as per slab rate of Individuals.

Capital Gains

If the transaction are not frequent and are in nature of Investment in the currency, it would be classified as capital gains and would attract either long-term capital gain tax or short-term capital gain tax, depending on the holding period. Long-term capital gains tax will be taxed at 20% if Bitcoins were held for at least 36 months. In all other cases, short-term capital gains tax at 30% would be applicable

RBI warning

RBI issued fresh warnings, reminding investors that it has not authorised any entity to deal in Bitcoins and that any investor or trader dealing with virtual currencies "will be doing so at their own risk".

Bitcoin sale by Non Resident

Income from sale of Bitcoins earned outside India and received outside India will not be taxable in India if you qualify as non resident or resident but not ordinarily resident in India. Subsequent remittance of the said income will also not be taxable in India. But since the issue is not a settled concept, there can be possible litigation with the tax authorities on this issue.

Advance Tax and Future

Advance tax deadline is on December 15, Bitcoin investors and their consultants are trying to figure out a way to deal with the returns on Bitcoin investment along with other cryptocurrencies. We can expect some clarity once the Finance Ministry finalises its opinion on a report on virtual currencies that was submitted to it recently. It would be interesting to see if GST will be applicable or not? Only future has answer to it. https://www.expertmile.com

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[avikz]

Hi Reeya, I believe it makes more sense to report crypto related earning under section 44ADA as a professional income. This year my CA suggested the same as it comes with a lot of benefits.

Firstly you are allowed to deduct 50% of your crypto earnings as expenses which will reduce your tax burden. Secondly, you are not required to keep accounting of your earning if it remains below 40 lakhs.

I don't think capital gains/loss will be applicable in the case of crypto because crypto is not yet classified under any particular asset class. 44ADA is more realistic when we have no clear tax guidelines in place!
 

[Theb]

Really depends on how you have earned that Bitcoin and since India is the country we are talking about the only possible tax they will have is through capital gains since we all know there is an official ban on cryptocurrencies as a mode of payment in their country, it cannot even be sent p2p as no one can declare it as their income legally. Aside from your trading history you have online my advice is you also back it up on the books so you have another offline copy in case you need to show both to the authorities.

[dothebeats]

And just a few weeks ago, we have the hot topic of India closing its doors completely to cryptocurrencies and now we got this discussion on bitcoin taxation in the same country. India is like playing the game China did a few years back, and it's actually confusing and at the same time, very difficult to deal with cryptocurrencies until the coast is clear.

Firstly you are allowed to deduct 50% of your crypto earnings as expenses which will reduce your tax burden. Secondly, you are not required to keep accounting of your earning if it remains below 40 lakhs.

This clears the confusion on those people who earns a somewhat low amount on their trading ventures. This is actually pretty good, though I'm not sure how will your tax bureau be able to keep track of the declaration on tax since anyone can just chime in an arbitrary amount in there and hope for the best.

[erikalui]

Hi Reeya, I believe it makes more sense to report crypto related earning under section 44ADA as a professional income. This year my CA suggested the same as it comes with a lot of benefits.

Firstly you are allowed to deduct 50% of your crypto earnings as expenses which will reduce your tax burden. Secondly, you are not required to keep accounting of your earning if it remains below 40 lakhs.

I don't think capital gains/loss will be applicable in the case of crypto because crypto is not yet classified under any particular asset class. 44ADA is more realistic when we have no clear tax guidelines in place!
 

How can you deduct 50% as expenses? It may be applicable for those who trade as their losses can be counted but not for those who earn and withdraw via fiat like signature campaigns or other freelancing jobs. It doesn't matter at what price they got those bitcoins and what price they sold it at as INR is not involved here. We can't even use the fee as an deduction I suppose.

[buwaytress]

And just a few weeks ago, we have the hot topic of India closing its doors completely to cryptocurrencies and now we got this discussion on bitcoin taxation in the same country. India is like playing the game China did a few years back, and it's actually confusing and at the same time, very difficult to deal with cryptocurrencies until the coast is clear.

Firstly you are allowed to deduct 50% of your crypto earnings as expenses which will reduce your tax burden. Secondly, you are not required to keep accounting of your earning if it remains below 40 lakhs.

This clears the confusion on those people who earns a somewhat low amount on their trading ventures. This is actually pretty good, though I'm not sure how will your tax bureau be able to keep track of the declaration on tax since anyone can just chime in an arbitrary amount in there and hope for the best.

Is the confusion really cleared though? Why am I expecting many more months and delays? I remember reading the article in April (or was it March?) when the case was moved to July. Something about this time, it's for real, because now it's not a miscellaneous day. Guess everybody likes being proven wrong by the Indian powers that be.

Varun Sethi needs to post Twitter pics of people protesting in the streets. They supposedly got so mad at the last delay they took to demonstrations, they should be burning tyres at least at this=p

[CryptoBry]

So the government is so willing to accept and even imposed the necessary tax for gains in Bitcoin and I assumed other forms of cryptocurrency as well and yet it is not recognizing Bitcoin as a legal currency or asset at all? In my view, the government has no right to impose a tax to something that is not legal in law...but then this exposed how greedy the government can be (all governments are in varying degree, I guess). It is just frustrating to see many governments which seem to be having some disconnect. Anyway, we have no choice really when it comes to tax.

[eaLiTy]

So the government is so willing to accept and even imposed the necessary tax for gains in Bitcoin and I assumed other forms of cryptocurrency as well and yet it is not recognizing Bitcoin as a legal currency or asset at all? In my view, the government has no right to impose a tax to something that is not legal in law.

The government does not care whether you make money or not, but if you are making an income you have to give the share to the government and there is nothing you can do to overcome those, majority of the people does not want to be an outlaw and if you are skipping the tax then you will end up in trouble one way or the other. Either you move out to a country which is a tax heaven or you live according to the rules of the land you are living.

[erikalui]

^If you are making money, then only you will be taxed. Any income above 2.5 lacs is taxable but when they recently made an announcement about 5 lacs giving full rebate, I was confused how they will consider bitcoins in it. Here is notice a user received for not paying taxes:

⚠️ Indian Income Tax Department Again Sending Notices To Cryptocurrency Traders & Investors

and also this

In an interview (https://m-economictimes-com.cdn.ampproject.org/c/s/m.economictimes.com/news/economy/policy/significant-rate-cut-would-do-a-lot-of-good-to-the-country-says-nirmala-sitharaman/amp_articleshow/70425812.cms#stickyBanner) the Finance Minister of India was asked about the Draft report on Cryptocurrencies that advocates a complete ban on trading, mining, holding Cryptocurrencies.

⚠️ She considers it futuristic & well thought out, but they will be looking into it again before making their position clear.

Source: https://t.me/BitcoinIndia/

So if the bill is passed, it would make earnings an illegal offense so no paying taxes is out of question. This finance minister is more harsh than Arjun Jaitley.

[avikz]

Hi Reeya, I believe it makes more sense to report crypto related earning under section 44ADA as a professional income. This year my CA suggested the same as it comes with a lot of benefits.

Firstly you are allowed to deduct 50% of your crypto earnings as expenses which will reduce your tax burden. Secondly, you are not required to keep accounting of your earning if it remains below 40 lakhs.

I don't think capital gains/loss will be applicable in the case of crypto because crypto is not yet classified under any particular asset class. 44ADA is more realistic when we have no clear tax guidelines in place!
 

How can you deduct 50% as expenses? It may be applicable for those who trade as their losses can be counted but not for those who earn and withdraw via fiat like signature campaigns or other freelancing jobs. It doesn't matter at what price they got those bitcoins and what price they sold it at as INR is not involved here. We can't even use the fee as an deduction I suppose.

44ADA is specifically created for freelancers! Traders and investors will have to go through the capital gain/loss route!

But whoever is engagged with freelancing and earning in bitcoin, they can take the benefit of 44ADA. You need to calculate only the amount you hve cashed out in fiat and not the whole amount of bitcoins earned!

For example, you have earned 1 bitcoin from a signature campaign but cashed out only 0.5 bitcoin in fiat. So you need to show only 0.5 in Indian rupee as your income. There is no specific law regarding cryptos yet in India, so we can take such leeway! Read details about 44ADA below,

https://www.paisabazaar.com/tax/section-44ad-income-tax-act/

[erikalui]

44ADA is specifically created for freelancers! Traders and investors will have to go through the capital gain/loss route!

But whoever is engagged with freelancing and earning in bitcoin, they can take the benefit of 44ADA. You need to calculate only the amount you hve cashed out in fiat and not the whole amount of bitcoins earned!

For example, you have earned 1 bitcoin from a signature campaign but cashed out only 0.5 bitcoin in fiat. So you need to show only 0.5 in Indian rupee as your income. There is no specific law regarding cryptos yet in India, so we can take such leeway! Read details about 44ADA below,

https://www.paisabazaar.com/tax/section-44ad-income-tax-act/

Crypto earnings will never be taxable so that's what I was asking as there are no deductions when you convert the crypto into fiat. Entire fiat money converted is taxable so no 50% deductions are applicable as expenses. The latest notice is again too confusing as they are asking source and the number of altcoins that were converted too and the balances in crypto wallets which shouldn't be their concern at all. They only need to be bothered about amounts converted to INR.

[Harlot]

I don't think that there is really a lot of options for the Indian cryptocurrency industry when it comes to what they can declare as their crypto earnings, the difficult part their is determining whether or not the income they earned is legal or not because if they declared something illegal then they would definitely be charged with a crime. Right now only capital gains is the only thing I see as a legal way to earn in crypto in that country.

[jrrsparkles]

I don't think that there is really a lot of options for the Indian cryptocurrency industry when it comes to what they can declare as their crypto earnings, the difficult part their is determining whether or not the income they earned is legal or not because if they declared something illegal then they would definitely be charged with a crime. Right now only capital gains is the only thing I see as a legal way to earn in crypto in that country.

Earning crypto currencies are not prohibited in Indian market,only buying with their fiat is restricted by banks not government so as long as there is no bank transaction involved while buying or selling bitcoin in India has no criminal offence on the trader but it is not possible to trade personally for each and every time when people want to trade so they are using localbitcoin mostly and also wazirx then few p2p exchanges.

[iMark]

Really depends on how you have earned that Bitcoin and since India is the country we are talking about the only possible tax they will have is through capital gains since we all know there is an official ban on cryptocurrencies as a mode of payment in their country, it cannot even be sent p2p as no one can declare it as their income legally. Aside from your trading history you have online my advice is you also back it up on the books so you have another offline copy in case you need to show both to the authorities.

To apply taxes on bitcoin income is not as easy as imagined. with financial records/offline copy will not be enough because it will be prone to forgery. the tax for income in bitcoin is indeed very charming to be applied in various countries because its profitable. but a system for collecting taxes from bitcoin does not yet exist.

[legendster]

Hi Reeya, I believe it makes more sense to report crypto related earning under section 44ADA as a professional income. This year my CA suggested the same as it comes with a lot of benefits.

Firstly you are allowed to deduct 50% of your crypto earnings as expenses which will reduce your tax burden. Secondly, you are not required to keep accounting of your earning if it remains below 40 lakhs.

I don't think capital gains/loss will be applicable in the case of crypto because crypto is not yet classified under any particular asset class. 44ADA is more realistic when we have no clear tax guidelines in place!
 

Lets not forget that through 44da we cannot claim business expenses for tax benefits. If you are into mining, you might want to look into that and weigh your options.

Under 44da your GR has to be under 2 cr and net income is about 6 - 8% of that. However, I find the '100% Advance Tax by 15th March' rule to be a little hectic myself since banks are already causing chaos due to year ending at that period.

[jaocoincrypto18]

I think it is too early for this Bitcoin tax collection details because we don't know that your country might declare free on tax on Bitcoin therefore i suggest that you wait for your government conclusion in which still is on going review regarding Bitcoin legality in the country.
https://news.bitcoin.com/indian-supreme-court-postpones-crypto-case-to-november/?utm_source=OneSignal%20Push&utm_medium=notification&utm_campaign=Push%20Notifications

[haufranco]

Agree. I saw news on India being blocking all the activity so it might not become such a right decision now

[MURONDI]

How profit from Bitcoin will be taxed in India?

Bitcoin is the buzzing word on social media and all want to become rich by investing in the crypto currency. Many Indian despite RBI warning has invested in to Bitcoin few months back and have made handsome gains. The question now remains is the gains on sale of Bitcoin is taxable under Income Tax Act? If yes then it shall be taxed as business Income or Capital Gains or something else ?

Any gain on Bitcoin is taxable as any gain on account of Bitcoin exchange is certainly (100%) taxable because the definition of income u/s 2(24) under Income Tax Act is inclusive, which mean every kind of income unless clearly exempt .

When will Bitcoin Tax Liability Arise

The buying and holding of Bitcoin wont attract any Income tax liability. The selling of Bitcoin will lead to profits or gains which will be considered as Income and taxed in India

Speculative Income

This is debatable on account of lack of any law related to taxation of Bitcoin in the Income Tax Act . It will be determined on the basis of each facts and circumstances. In case of trading it will be considered as speculative income and will attract tax as per slab rate of Individuals.

Capital Gains

If the transaction are not frequent and are in nature of Investment in the currency, it would be classified as capital gains and would attract either long-term capital gain tax or short-term capital gain tax, depending on the holding period. Long-term capital gains tax will be taxed at 20% if Bitcoins were held for at least 36 months. In all other cases, short-term capital gains tax at 30% would be applicable

RBI warning

RBI issued fresh warnings, reminding investors that it has not authorised any entity to deal in Bitcoins and that any investor or trader dealing with virtual currencies "will be doing so at their own risk".

Bitcoin sale by Non Resident

Income from sale of Bitcoins earned outside India and received outside India will not be taxable in India if you qualify as non resident or resident but not ordinarily resident in India. Subsequent remittance of the said income will also not be taxable in India. But since the issue is not a settled concept, there can be possible litigation with the tax authorities on this issue.

Advance Tax and Future

Advance tax deadline is on December 15, Bitcoin investors and their consultants are trying to figure out a way to deal with the returns on Bitcoin investment along with other cryptocurrencies. We can expect some clarity once the Finance Ministry finalises its opinion on a report on virtual currencies that was submitted to it recently. It would be interesting to see if GST will be applicable or not? Only future has answer to it. https://www.expertmile.com

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I think it's very difficult to ask taxes on bitcoin holders, even the government doesn't know who holds bitcoin, if bitcoin is taxed certainly not an individual person, I think the government will ask for direct taxes on local exchanges, maybe a local exchange will increase transaction costs to pay taxes.