Income tax on Bitcoin

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.

Income tax on Bitcoin

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

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:

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Section 80GG Deduction for Rent Paid

Don’t you  receive  HRA from your employer

Typically, HRA is part of your salary and you can claim a discount for HRA. If you do not receive an HRA from your employer and make payments for rent for any furnished or unfurnished accommodation you occupy for your stay, you can claim a deduction under Section 80GG for the rent you pay. Here are some of the conditions that must be met –

  • You are self-employed or salaried
  • You did not receive HRA at any time during the year you claim 80GG
  • You, your spouse or your minor child in which you are a member do not have any residential housing in the place where you currently reside or perform office duties, work, work or occupation.
  • If you own any residential property anywhere, your income is calculated from the home within the applicable divisions (as a self-owned enterprise), no deduction is allowed under section 80GG.

You will be asked to submit a 10BA form with details of the rent payment.

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Discount – the lowest will be considered as a deduction under this section –

A Rs 5000 per month

(A) 25% of total income (income to exclude long-term capital gains, short-term capital gain under Section 111A and revenue under Section 115A or 115D and deductions 80C to 80U.

(B) actual rent less than 10% of income (income to exclude long-term capital gains, short-term capital gain under Section 111A and revenue under Section 115A or 115D and deductions 80C to 80U.

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GST Transitional Claims

GST Transitional Claims of Over Rs 1 Cr to be Scrutinised

While tax collections in July were Rs 95,000 cr, transitional credit claims are Rs 65,000 cr

As much as Rs 65,000 crore out of the nearly Rs 95,000 crore tax collections in July -the first month of GST -have been claimed as transitional credit by taxpayers, prompting the apex indirect taxes body the Central Board of Excise and Customs to order a scrutiny of all cases above Rs 1 crore.

The Goods and Services Tax (GST) regime, which kicked in from July 1, allows tax credit on stock purchased during the previous tax regime. This facility is available only up to six months from the date of GST rollout.

Central Board of Excise and Customs (CBEC)

The Central Board of Excise and Customs (CBEC), the body which deals with formulation and implementation of policy concerning the levy and collection of indirect taxes, in a letter dated September 11 has asked tax officials to verify GST transitional credit claims of over `1 crore. In the transitional credit form TRAN-1  filed by taxpayers along with their maiden returns for July, businesses have claimed a credit of over Rs 65,000 crore for excise, service tax or VAT paid before the GST was implemented from July 1.

As per the GST law, carry forward of transitional credit is permitted only when such credit is permissible under the law.

“The possibility of claiming ineligible credit due to mistake or confusion cannot be ruled out… It is de sired that the claims of ITC (input tax credit) of more than Rs 1 crore may be verified in a time-bound manner,“ the CBEC emphasised. It asked the chief commissioners to send a report to the CBEC by September 20 on the claims made by these companies.

CBEC

To ensure only eligible credit is carried forward in the GST regime, the CBEC has asked field offices to match the credit claimed with closing balance in returns filed under the earlier law. They are also required to check if the credit is eligible under the GST laws.

Till last week, as many as 70 % of 59.57 lakh taxpayers had filed returns for July, amounting to maiden revenue of Rs 95,000 crore under the GST regime.

However, out of this, the input tax credit (ITC) data for Central GST (CGST) claimed in TRAN-1 has shown that registered businesses have claimed over Rs 65,000 crore as transitional credit.

The government, in late August, had come out with form TRAN-1for businesses to claim credit for taxes paid on transition stock.

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