Taxation on Cryptocurrency in India

Introduction:

In India, The Reserve Bank of India (RBI)  has still not granted cryptocurrenct or bitcoin the status of legal person for tax purposes. Thus, there is no such clear regulation and provisions for the taxability for cryptocurrencies  in India. The same aspect is questinable and requires clarification form the Income Tax Department.

However,  there are speculation about the possibilities for the cryptocurrency transaction an not only be taxable under the provisions of Income Tax Act 1961 but also under the Central Goods and Services Tax (CGST) Act, 2017 basing on the transaction type. On the other hand, the Ministry of Corporate Affairs has made it compulsory for disclosure of cryptocurrency investment and trading for the companies during a particular financial year.

Taxation under the Income Tax Act:

 The details of taxation of cryptocurrency under different heads of income under Income Tax Act, 1961 are their tax implication are provided below;

 Income from Business and Profession:

 The aforesaid transaction inlcudes receiving of crypocurrenct as a consideration for supply of goods or sale of services and purchase or sale cryptocurrency as stock in trade. These transaction are taxable under the provsions of the Income Tax Act, 1961.  According to section Under Section 28 of the Income Tax Act, any acitivity which is continuous in nature such as trade in cryptocurrenct is included under the definition of business and the profits made by the same are taxable.

Income from other sources:

The income form other sources  includes cryptocurrency generated from mining busines which is soley used for investment purpose and the receipt of cryptocurrency as a gift. According to the provisions for Income Tax Act, these tranasaction are taxable.C

Cryptocurrency Generated through mining:

According to the opinions of experts, the currency earned through mining should actually be considered under the income head of other sources income. Considering the same, it must be noted that Section 55 of IT Act provides the provision for cost of improvement and acquisition that does not recognize mining.

Cryptocurrency Received in the form of gift:

The cryptocurrency received in the form of gift is taxabke under head of income from other sources with  a particular tax slab.  Accodingly, the cryptocurrency received as gift of Rs. 50,000 or more is completely taxable. However, there are certain exemption that can be applicable on cryptocurrency. Some of the exemption criteria are as follows;

• Gift received for Marriage

• By way of inheritance

• Gift received from a relative

Salary and income from House Property:

As the cryptocurrency is still not leaggly recognized by the government of India, the employers are not allowed to make payment of salaries in the form of digital currency. Likewise, the payment of rent in the form of digital currency is also not legal and thus the same cannot recognized legally and is currently not taxable in India under the present income tax law, untill and unless spcific provisions are announced for the same.

Capital Gains:

Section 2(14) of the Income Tax Act, provides the definition of capital asset. It states that capital asset as a property can be of any kind aquired by the taxpayer whether it may be connected with his profession and business. Capital assets includes all types properties except those excluded under the IT Act. Thus, any profit generated through the transfer of cryptocurrency should be considered as capital gain, if it is held for investment purposes and it is taxable depending on  duration of property held. The gains are subject to taxation under to taxation under long-term capital gains and short-term capital gains are 20 percent (post indexation) and taxed as per individual slab rate respectively.

Taxation under the Central Goods and Services Tax Act:

 As per the provsions of the CGST Act, any business activity which pertains to crypto assets or cryptocurrency is taxable, until and unless it is specifically exempted. The Central Economic Intelligence Bureau (CEIB) has proposed to Central Board for Indirect Taxes and Customs (CBIC) that cryptocurrency mining should be treated as  supply of service as it generate cryptocurrenct and the taxable rate for the same will be 18% of GST.