Bitcoin is a form of cryptocurrency, which is a digital amount that can serve as a medium for exchange. The individual’s coin ownership records are stored in a computerized database with the help of strong cryptography In simple terms, it is a decentralized digital currency that promotes highly secure global transactions. Every individual is provided with an online wallet that is divided as:
a) Wallet or online wallet
b) Multi-signature wallet (one that requires more than one key to carry out transactions)
c) Cold wallet or offline wallet.
Bitcoin is one such cryptocurrency and it can be stored in one of the wallets of preference and the transactions are perfectly recorded in a public list referred to as the blockchain. But Bitcoins in India do not hold a legal tender status under the RBI, yet.
Bitcoin was the first-ever cryptocurrency which came into existence in the year 2009. One can get Bitcoin by various ways, most popular of which are:-
Bitcoin mining is the process of creating new cryptocurrencies by solving computational puzzles. It requires heavy competitive mining computers and takes up to 4-5 days, approximately. Mining is a digital activity where a person uses his computer process to crack computationally difficult puzzles. The process of cracking such puzzles which are integral to blockchain technology, help in maintaining them. As a reward for this, the miner gets reward which can be in form of any cryptocurrency. This leads to nothing but creation of a Bitcoin or other cryptocurrency.
Previously as there was ambiguity on taxation of digital assets and also, there was absence of any specific provision on the same, so one can tax any profit on sale of his digital assets in those years as:- The predominant factors adhering to the taxation process are the holding period and disposition of the currencies. If these currencies are traded off in less than a year, they are taxed at the rate of short-term capital gains tax. Whereas, if they are disposed of after holding them for longer than a year, its taxation rate constitutes that of long-term capital gains. You can also find different websites on the internet to determine the type of asset you are holding and thereby, its tax rate. Apart from trading, Bitcoin mining is a process of creating new cryptocurrencies by solving computational puzzles. It requires heavy competitive mining computers and takes up to 4-5 days, approximately. These miners are paid through Bitcoins and this form of their income again becomes taxable.
But now As per Union Budget 2022 proposed on 1.02.2022, Profit from Digital assets like Bitcoin or any other cryptocurrency or NFT will be taxed under section 115BBH at 30%. Further, while computing the profit from any digital asset only cost of acquisition of such digital asset will be allowed as expenditure from sale proceeds and no other expense like commission or brokerage or depreciation (if any fixed asset like laptop is used in such transaction) etc. Also, it is important to note that in case of any loss from digital assets will not be allowed to set off against any other income.
Also, as per Section 194S a TDS deduction @ 1% will be done on sale of Digital assets by the platform like (wazirx, coindx etc) if the amount of such sale exceeds Rs. 50000/- .
However, in case of buying where the person purchasing such asset is an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him exceeds Ruppes one crore rupees in case of business or fifty lakh rupees in case of profession then TDS will deducted on purchase of amount greater than Rs. 10000 only and in other case TDS will be deducted in case of buying Digital assets of amount more than 50000.
Any Cryptocurrency including Bitcoin will be taxed only on its trading i.e., On selling the Bitcoins to a third party. Some of such instances where taxation arises:-
Tax rate on which the profit from Digital assets like Bitcoin or any other cryptocurrency or NFT will be taxed is 30%
Despite the conditions mentioned above, the volatility of these cryptocurrencies makes it extremely difficult to analyze, determine and maintain a definite value for the same. This, in turn, affects the taxability of the ever-changing g money values of the digital currency.
Make sure to keep a solid and clean record of the time of acquisition and disposal of the cryptocurrencies you own. One way to ease up this exhaustive process is by aggregating all the records that essentially constitute the buys, sells, conversions, exchanges, airdrops, and mined coins into one single and a collective unit. With an intelligible and lucid transaction history, one can manoeuver through the crypto world without any technical predicaments.
Cryptocurrency draws a line of similarity with the already existing sources of income in one main aspect which is, taxation. When the income tax department takes notice of your unpaid taxes, they initially alert the individual by sending out a fair warning notice. If the individual continues to neglect the payment of taxes, they are imposed with respective penalties.
ICO is a method sanctioned to raise adequate funds for the development of new types of cryptocurrencies. Interested investors can take up on the offerings laid down and acquire new cryptocurrencies. This procedure is done by creating a whitepaper that briefs about what the project is about and the promises the project owes to fulfill on its timely completion. The tokens for the project are either bought through fiat money or digital currencies.
Since Bitcoins are decentralized and not regulated by any autonomous management, they hold a few risks. Bitcoins are highly volatile and when these currencies are not supervised by-laws and strict regulations, it provides opportunities for illicit transactions to take place. The anonymity of an identifying owner in the crypto world is also a crucial reason for any kind of illegitimate transactio
The cryptocurrencies were under a ban in India in the year 2018. Later, the Supreme Court of Justice ordered to lift the ban on 4 March 2020. This new rule makes it legal to trade Bitcoins in India. However, they are still decentralized and not regulated by the central authority of India.
However, As per Union Budget 2022 proposed on 1.02.2022, Profit from Digital assets like Bitcoin or any other cryptocurrency or NFT will be taxed at 30%, Understanding this one can say that Digital assets are not illegal.
No, Till date Bitcoin is not yet approved as a legal tender, nor does the govt of India has imposed any regulation or any administration on buying, selling, mining or holding of cryptocurrencies. However, in the budget 2022, the finance minister announced to launch India’s own virtual or digital currency to allow individuals to take the advantage of digital currencies.
Due to lack of regulations or presence of any tax law on Bitcoin or any other cryptocurrency, any person can cash-out his/her holding without payment of tax. But such transaction should be disclosed while filing the Income tax return and any tax thereupon on such transactions should be paid to government.
Investment decision differs from one person to another based on certain factors like risk appetite, required rate of return, period of holding, transparency etc.
Tax rate on which the profit from Digital assets like Bitcoin or any other cryptocurrency or NFT will be taxed is 30%
Tax is required to be paid only when Bitcoins are sold, considering all sales as cash-out transactions, one can say that you don’t have to pay taxes on Bitcoin if you don't cash-out
