Income tax on Bitcoin & its legality in India
What is bitcoin?
Bitcoin is one of the oldest forms of encryption, which forms part of the peer-to-peer payment system worldwide. Cryptocurrency is digital money. It is considered to be more secure than real money. Cryptocurrency uses something called encryption to get transactions. Encryption, in simple words, is a way to convert understandable data into complex symbols that are difficult to break. Cryptocurrencies are classified as a subset of digital currencies, currencies, and virtual currencies.
Bitcoin was the first coin quantity created in 2009. Thereafter, there has been a rapid increase in the number of cryptocurrencies cases that have created some of them Litecoin, Ethereum, Zcash, Dash, Ripple etc. Bitcoins, in India, are slowly gaining popularity, in view of the government’s efforts to move towards a non-monetary economy. However, one should know that fortification, as of today, is not centrally managed or regulated by any specific body such as the RBI who manages the physical currency in India.
Related Article: Bitcoin transaction Warnings!
Where does bitcoin come from or how is it generated?
Mining is an activity in which an individual (called a “mining worker”) uses his or her own computer prowess to overcome difficult mathematical puzzles. The cracking process of these puzzles is an integral part of blockchain technology, helping to preserve it. As a reward, the miner gets new bitcoins which are just a bitcoin or mining creation.
Purchase them from the exchange of Betquin against the real currency
Everyone can not be a bitcoin miner. Hence, you can consider buying bitcoins from bitcoin exchanges and store them in your online wallet in digital format. Unicoin, Brit xoxo, Zebpay, Coinbase etc. are some of the bitcoin exchanges currently in India. These bitcoins will be purchased in mind for the real currency. It will be interesting to note that the value of 1 Bitcoin currently stands at about 642,592 Indian Rupees.
Receipt of vouchers against the sale of goods and services
Although this may not be a common phenomenon in India at present, there are few smart businessmen who accept BitCoin (instead of the real currency) to sell goods or services, they deal with them.
3. Is Bitcoin legal in India?
As discussed earlier, the Bitcoin, as a payment intermediary, has not been authorized or regulated by any central authority in India. In addition, no specific rules, regulations or guidelines have been established to resolve disputes that may arise during dealing with the composition. Thus, the Bitcoin transactions come with their own risk set. However, given this background, one can not conclude that the formulations are illegal, so far, there has been no ban on decomposition in India.
4. How is a tax on Bitcoin in India?
The concept of bitcoins is entirely new to the Indian market, apparently, the government has yet to bring taxes from the bitcoins in the platform books. At the same time, a tax on decomposition cannot be ruled out because India’s income tax laws always seek to impose a tax on the income received irrespective of the form in which it is received. Therefore, the possibility of taxing the bitcoins can be considered under the following conditions:
Scenario A: Bitcoin Mining
Bitcoins created by mining are self-capital assets. The subsequent sale of such a house would, in the normal context, lead to capital gains. However, one may notice that the cost of getting a homeowner cannot be determined because it is a subjective asset. Moreover, they do not fall within the provisions of article 55 of the Income Tax Act of 1961, which specifically specifies the cost of acquiring certain self-created assets. Therefore, the mechanism of calculation of capital gains fail in the wake of the decision of the Supreme Court in the case of B.C.Srinivasa Shetty. Consequently, capital gains tax will not arise on Bitcoin Mining.
This position will continue until the Government contemplates an amendment to article 55 of the Act. At this juncture, as India’s tax laws are silent on the full taxability of taxation, we have found it right to comment on a possible reverse view by the IRS. There is a possibility that management may not consider bitcoins as capital assets at all. Thus, the provisions of capital gains will not be applied at all. Accordingly, income tax authorities may choose to tax the value of the formations received from mining under the heading “income from other sources”.
Scenario B: Betcinins held as an investment being converted against a real currency
If capitalization, which is capital assets, is held as an investment and is converted against a real currency, the higher value will result in long-term capital gains or short-term capital gains depending on the period of the CITC contract. Moreover, long-term gains will be taxed at a fixed rate of 20% while short-term gains will be taxed on the individual tile price. The acquisition cost will be determined to reach long-term capital gains after giving the indexing feature. A simple example below is to understand this: