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webtricks
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December 03, 2019, 04:48:10 PM
Last edit: December 05, 2019, 08:57:04 AM by webtricks
Merited by Heisenberg_Hunter (5), deadley (2), Stedsm (2), avikz (2), teosanru (2), akhjob (2)
 #1




People Pay Your Taxes - v2.0
Details on taxation of Bitcoin in India

This thread is a newer version of old thread which can be found here. As Crypto Economy has grown exponentially in last few years, a thread was needed with much more detailed information about taxation than the last one so here it is.

I will start the thread with the rule of thumb:

"Since bitcoin has no legal/illegal status in India, you don't have to pay tax on keeping/holding bitcoin. You may have 0.001 or 100 BTC in your wallet but no tax to be levied as far as amount is kept in the form of Bitcoin. Bitcoin is currently considered at par with securities such as shares for taxation purpose.




So when tax has to be paid?

Whenever you convert your crypto holding to Indian Rupee and you have made some profit/income, you have to pay tax. As simple as this. For more clarification, check image below:


Note: You have to file return irrespective of whether you made profits or not. Paying tax and file return are not the same thing.



Ok! So we have discussed when to pay tax, now is the time to discuss how and how much tax to pay. In order to discuss that we first have to ascertain various instances or possible scenarios where one make income or profits in bitcoin (or altcoins).

Case 1 (rarest case): I receive salary in Bitcoins
You may be receiving salary in Bitcoin either from local business or foreign business. If local business is paying you salary in Bitcoins, there can be two possibilities - business claims same as expense in its books or it doesn't show salary paid as expense. The treatment done by business will directly impact your treatment. In case business claims salary paid as expense, it has to pay ESI/PF (if applicable) and deduct TDS (if applicable). If business does so, you too have to file income as 'Income under the head Salary'. Calculate tax applicable as per basic slabs and minus TDS deducted by your employer. In ninety nine percent cases, you tax payable will come 0 and you just have to file nil return if you don't have any other income.
If your employer doesn't claim salary paid as expense or you receive salary from foreign employer, don't file the income under the head Salary. Rather treat the same as freelancing treatment. I will discuss this in detail in few seconds.

Case 2 (common case): I earn Bitcoins from Sig Campaigns, Bounties, misc. sources
Well, this case covers me and most of the members here. You may be receiving signature payments, campaign management payments, ambassador payments, social media payments and what not. Just remember one thing - this is your freelancing income and you are professional. You have to show it as Technical Consultancy/Marketing business under 'Profit and gains from business and profession'. This way you can take advantage of Section 44ADA of Income Tax. Section states that you don't have to maintain any record or books. Just consider your total receipts and pay tax on minimum 50% of your receipts.
Example: I withdrew Rs. 10,00,000 during the financial year in my bank. Then I will show Rs. 10,00,000 as receipts from my consultancy business. As per Section 44ADA, I have to show my profits to be Rs. 5,00,000 or more (52-55% recommended), let say I show profit to be Rs. 5,20,000. Then I have to pay tax on Rs. 5,20,000 which will be around Rs. 14,000 or zero if I claim deductions of Rs. 20,000 or more (such as LIC premium paid, etc.).

Case 3 (most common case): I earn profits by buying/selling Bitcoins (or Altcoins)
So the largest portion of Indians associated with Bitcoins are those who invest in Bitcoins. You purchase Bitcoins from your bank, sell those, make profits and withdraw that to bank. Now investors can be of two types - Core Investors or Traders. Core Investors occasionally buy/sell Bitcoins, let's say I bought Bitcoins 8 times during last financial year and sold 4 times. Whereas traders are those who are continuously buying/selling Bitcoins, say 5-10 times in a day. If you are core investors - show your profits under the head Capital Gains. It can be long-term or short-term depending upon your holding duration. In case your made loss (when you bought high and sold for less), you need not pay tax. However, you have to file return with nil tax.
If you are trader, better show your profits under the head Profit and Gains from Business and Profession as calculating capital gains on such large number of transactions will be very tedious. So what you have to do, prepare your account books, treat all your buy transactions as purchases, treat all sell transactions as sales, you can also claim expenses like electricity, accounting charges, depreciation on laptops/mobiles, internet charges, etc. Ascertain your final profit and pay tax on the same as per basic slabs.



FAQs:

(I will list more FAQs as they are asked in this thread here)

Q1. I am already in employment or a government employee, am I allowed to show my signature earnings as profit from business?
Ans. Yes! Since you are showing your earnings as freelancing income, there is no restriction on that. Most of the MNCs and government allow employees to do sideway freelancing business  or be a dormant (non-active) partner in partnership firm.

Q2. I bought Bitcoin from my bank balance, sold it for profit then bought Ethereum for Bitcoin and sold Eth at loss and withdrew money to bank. Do I have to pay tax?
Ans. You actually did two capital gain transactions here. First, selling Bitcoins. Second, selling Ethereum. Suppose you bought 1 BTC for Rs. 5,00,000 and sold it for Rs. 6,00,000. Then bought 30 ETH for Rs. 6,00,000 and sold those for Rs. 5,50,000. Now you made Capital gain on first transaction of Rs. 1,00,000 and Capital Loss of Rs. 50,000 on second transaction. So you have to pay tax on net capital gain i.e. 1,00,000 - 50,000 = Rs. 50,000.



Important Advice

Although as a Bitcoin supporter, I support the adoption of Bitcoin as utility and increasing the use of Bitcoin as currency. But I strongly suggest you all to not spend Bitcoins directly for buying expensive assets like house and cars. Since status of Bitcoin is still not clear, you may land in big trouble if Income Tax Department tracks your transaction, it may be considered as money laundering. So always withdraw amount to bank first, pay tax if applicable and then spend on whatever you like.

Feel free to ask anything else or more details on any specific point.



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TigerMart
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December 03, 2019, 11:22:40 PM
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What if I earn BTC through signature campaign and alt coin trading, but never sale to get it to my bank account. Instead, if I buy gift cards and use them. For example, Amazon Pay gift card can be used to recharge mobile phone, pay electricity bill etc. Is this BTC -> Gift Card -> Product/Service a taxable event?
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December 04, 2019, 03:27:36 AM
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What if I earn BTC through signature campaign and alt coin trading, but never sale to get it to my bank account. Instead, if I buy gift cards and use them. For example, Amazon Pay gift card can be used to recharge mobile phone, pay electricity bill etc. Is this BTC -> Gift Card -> Product/Service a taxable event?

That's what I included in my answer in the last. When you using bitcoins to pay for utility, it means you are transferring value of money to the seller. You can only transfer value to someone when you possess it. So yeah, when you convert bitcoins to amazon balance, the amount becomes your income at that very point becuase Amazon balance is valued in INR.

This is something similar to say, I am getting my salary in cash. I spend it directly on my utility and never paid tax assuming IT Dep. will never know that I am getting any salary. However, one can easily track down my spendings by looking through my expenditures (which are on my name). Same happens when you spend btc for utility.

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December 04, 2019, 11:27:10 AM
Merited by Heisenberg_Hunter (1)
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That's what I included in my answer in the last. When you using bitcoins to pay for utility, it means you are transferring value of money to the seller. You can only transfer value to someone when you possess it. So yeah, when you convert bitcoins to amazon balance, the amount becomes your income at that very point becuase Amazon balance is valued in INR.
I'm sorry to disagree with you in this regard. This should not be a taxable event. Here is why...

Do you pay income tax while buying a Gift Card with INR? - NO

Do you pay income tax while buying a Product/Service with Gift Card you received as a gift? - NO

Then, why would you pay any tax in this case? I guess, you should not.

This is something similar to say, I am getting my salary in cash. I spend it directly on my utility and never paid tax assuming IT Dep. will never know that I am getting any salary. However, one can easily track down my spendings by looking through my expenditures (which are on my name). Same happens when you spend btc for utility.
I dont think this example represents the gift card analogy. Cash is a legal tender and hence a taxable instrument. So, getting salary on cash is definitely taxable. But, say if you are a farmer working on a field farming rice. Land owner pays you in 10Kg rice every month. You go to other farmers with 5Kg rice and exchange it with wheat. Do you need to pay tax anywhere for acquiring this 5kg rice and 5kg wheat?

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December 04, 2019, 04:49:58 PM
Merited by Heisenberg_Hunter (3), webtricks (2), akhjob (1)
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First of all if you are considering it as a professional income under 44ADA make sure the receipts don't increase more than 20lakhs because that would bring you under purview of gst. If this happens try showing this income on any other member of your family by receiving the fiat in his account to avoid unnecessary 18% or 6%(composition) GST.
What if I earn BTC through signature campaign and alt coin trading, but never sale to get it to my bank account. Instead, if I buy gift cards and use them. For example, Amazon Pay gift card can be used to recharge mobile phone, pay electricity bill etc. Is this BTC -> Gift Card -> Product/Service a taxable event?

That's what I included in my answer in the last. When you using bitcoins to pay for utility, it means you are transferring value of money to the seller. You can only transfer value to someone when you possess it. So yeah, when you convert bitcoins to amazon balance, the amount becomes your income at that very point becuase Amazon balance is valued in INR.

This is something similar to say, I am getting my salary in cash. I spend it directly on my utility and never paid tax assuming IT Dep. will never know that I am getting any salary. However, one can easily track down my spendings by looking through my expenditures (which are on my name). Same happens when you spend btc for utility.
Your example is wrong. Actually tax is a very vast subject and these things take place everyday due to difference interpretation of law. Which is why tribunals exist. Thing is bitcoin cannot be considered money. It cannot even be considered an asset. So it is just barter.

Do you pay income tax while buying a Gift Card with INR? - NO
No you don't, because the INR you used to buy gift card was already taxed when you received it.
Quote
Do you pay income tax while buying a Product/Service with Gift Card you received as a gift? - NO
Well income tax is payable on gifts received in cash or kind. You know technically you have to pay tax on this gift card received if the amount of total gift cards/gifts exceeds ₹50000/- in an year. Read section 56 of the income tax act. Gift card is just like a cash equivalent. Therefore it would be a taxable gift.
Quote
Then, why would you pay any tax in this case? I guess, you should not.
But in this scenario, things are a bit technical. As there was no payment such payment option on such sites except fiat there is no specific law on it. Moreover considering the minute amount involved like recharge, bills etc. I doubt there would be any law on it. But, if things go in higher amounts be ready to face additions to income and try finding a valid precedent as to why you haven't paid tax on it.
Quote
I dont think this example represents the gift card analogy. Cash is a legal tender and hence a taxable instrument. So, getting salary on cash is definitely taxable. But, say if you are a farmer working on a field farming rice. Land owner pays you in 10Kg rice every month. You go to other farmers with 5Kg rice and exchange it with wheat. Do you need to pay tax anywhere for acquiring this 5kg rice and 5kg wheat?

It's funny because If we go by your suggestion i would consider my whole bitcoin income as gift because it's not money i can consider just like rice because there is no law on it. how come is this idea??

As per the contract act anything received as in pursuance of any service is consideration which might even not be cash. So your AO will definitely make this consideration taxable.

But why we don't see such things happening around with farmers and all is because people below 2.5 lacs Don't file returns and for people with income more than 2.5 lacs such things are pretty minute. Also not to forget agricultural income is exempt.
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December 04, 2019, 07:13:23 PM
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But in this scenario, things are a bit technical. As there was no payment such payment option on such sites except fiat there is no specific law on it. Moreover considering the minute amount involved like recharge, bills etc. I doubt there would be any law on it. But, if things go in higher amounts be ready to face additions to income and try finding a valid precedent as to why you haven't paid tax on it.

Using Amazon Pay we can do a hell lot of things in India. From grocery shopping to medicine to transport all can be done through Amazon Pay. But, Amazon Pay limits a verified user to use 1L INR worth of Gift card per year. So, will this 1L INR per year, in the form of gift card, be taxable if all these utilities are availed?

Moreover, from your detailed post, it seems like you are either a CA or a very knowledgeable person regarding taxation. So, can you please tell me whether barter is a taxable event in India? For example, if I exchange rice for wheat, like the example cited by 100bitcoin, does this very event attract taxation any way?
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December 05, 2019, 10:28:01 AM
Merited by Heisenberg_Hunter (3), deadley (2), webtricks (2)
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But in this scenario, things are a bit technical. As there was no payment such payment option on such sites except fiat there is no specific law on it. Moreover considering the minute amount involved like recharge, bills etc. I doubt there would be any law on it. But, if things go in higher amounts be ready to face additions to income and try finding a valid precedent as to why you haven't paid tax on it.

Using Amazon Pay we can do a hell lot of things in India. From grocery shopping to medicine to transport all can be done through Amazon Pay. But, Amazon Pay limits a verified user to use 1L INR worth of Gift card per year. So, will this 1L INR per year, in the form of gift card, be taxable if all these utilities are availed?
See in my opinion and in opinion of a general person obviously this is taxable because Income Tax officers are not stupid to realize this simple transaction of not converting btc to fiat and directly purchasing to evade tax. You will obviously be scrutinized. But as I said due to lack of any concrete law or precedent in this case judgement of the tribunal would be binding and would serve as a precedent for future judgement. Best you can do is try to not get caught by not doing any KYC on such platforms.

Quote
Moreover, from your detailed post, it seems like you are either a CA or a very knowledgeable person regarding taxation. So, can you please tell me whether barter is a taxable event in India? For example, if I exchange rice for wheat, like the example cited by 100bitcoin, does this very event attract taxation any way?
As I mentioned Contract act says that anything received in return of pursuance of services is consideration. For example even a future promise to pay is consideration. For example: If you sell something and other person promises to pay in future. Even this transactions is taxable and he would be your debtor.
100Bitcoin example was altogether hypothetical. I don't know which fairy world he is talking about because such transactions hardly take place on major levels. Transactions involving Barter would never be on profit because it would mean other person's loss.

However a hypothetical situation requires a hypothetical answer with real Solution:

In case of Barter taxability is determined in a complicated way using fair market values. For example: Assume there are two persons A & B. Both are in business of RICE & WHEAT Respectively. A producing rice whose fair market value is Rs. 50/kg and B producing wheat whose fair market value is 40/kg.

Now A goes to B and they agree that A would give 4 kg rice in return of 5 kg Wheat. Now in such case A's sale of goods would be Rs. 200 Taxable on basis of Fair Market Value and B's sale of goods would be Rs.200 too taxable based on fair market value. Because both are purchasing it for consumption for personal purposes they cannot claim it as an expense. So whole income is taxable.

But if both are not involved in business of Wheat and rice then these are merely gifts about which I have already talked here:  
Quote
Well income tax is payable on gifts received in cash or kind. You know technically you have to pay tax on this gift card received if the amount of total gift cards/gifts exceeds ₹50000/- in an year. Read section 56 of the income tax act. Gift card is just like a cash equivalent. Therefore it would be a taxable gift.

PS:
1. Meanwhile we are debating so much regarding the issue. I don't think as of now Amazon is even accepting Bitcoin or cryptocurrencies as payment options. Once it starts accepting governments would make some laws about it too so we can definitely rest assured regarding it.
2. I am a CA Smiley
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December 06, 2019, 03:06:15 AM
 #8

In case your made loss (when you bought high and sold for less), you need not pay tax. However, you have to file return with nil tax.

What if we apply this scenario on all the cases? What I mean is, what if someone is earning income in crypto through freelancing/salary/trading/etc. but at the end of the year their total income from all that is under the taxation limit (which is 2,50,000 if I am not mistaken). Do they still have to file return?

By the way, thank you for doing this. This information is very important and a positive step towards legalization of crypto in India.
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December 06, 2019, 11:19:46 AM
 #9

In case your made loss (when you bought high and sold for less), you need not pay tax. However, you have to file return with nil tax.

What if we apply this scenario on all the cases? What I mean is, what if someone is earning income in crypto through freelancing/salary/trading/etc. but at the end of the year their total income from all that is under the taxation limit (which is 2,50,000 if I am not mistaken). Do they still have to file return?


No, you are not required to file the return if your income is below 2,50,000. However, some people still like to file return even if they have income below minimum limit because Income Tax Return is most concrete evidence of your income. It may come handy if you have to submit income proof required for some documentation, say applying for Visa or Passport.
But still you have complete autonomy to choose if you want to file return or not.

By the way, thank you for doing this. This information is very important and a positive step towards legalization of crypto in India.

Glad, you liked it! Hope Bitcoin won't be banned in India. Smiley

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January 21, 2020, 05:20:25 PM
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Hey I am sorry if this is a extremely noob question, but what if I buy btc from a site like paxful with UPI but never sell it then do I have to only pay tax in the year that I sell it? So just hodl-ing means no tax?
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January 21, 2020, 06:32:05 PM
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Hey I am sorry if this is a extremely noob question, but what if I buy btc from a site like paxful with UPI but never sell it then do I have to only pay tax in the year that I sell it? So just hodl-ing means no tax?

Yes. You don't have to pay tax if you are just holding Bitcoins. Tax is charged on income but buying Bitcoin doesn't generate any income. Income will be generated when you will sell the Bitcoins for profit. Thus the event will be taxable in the year when you will sell your holdings and make some profits. Make sure to show it as capital gains whenever you sell it.

Consider this image for further reference:




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February 09, 2020, 05:56:14 PM
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1. Meanwhile we are debating so much regarding the issue. I don't think as of now Amazon is even accepting Bitcoin or cryptocurrencies as payment options. Once it starts accepting governments would make some laws about it too so we can definitely rest assured regarding it.
2. I am a CA Smiley

1. Though Amazon does not directly accept Bitcoin or cryptocurrencies as a payment option, you can still use BTC & a few other alts to buy Amazon gift card from Bitrefill and use them on Amazon.

2. Great to have a CA among us. Smiley
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February 14, 2020, 12:31:25 PM
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Hey Guys,

What crypto tax software you guys use?

If not sure check a list of crypto tax softwares here. (https://coincodecap.com/category/accounting-and-tax)
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