Cryptocurrencies and Bitcoin Taxation In India

What is Bitcoin?

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:

• Wallet or online wallet
• Multi-signature wallet (one that requires more than one key to carry out transactions)
• Cold wallet or offline wallet.

Bitcoin is one such cryptocurrency, and it can be stored in one of the wallets of preference. The transactions are perfectly recorded in a public list referred to as the blockchain. However, Bitcoins in India do not yet have legal tender status under the RBI.

Is Crypto Taxed in India?

Yes, the profits or gains from cryptocurrencies are taxable in India. From April 2022, the government has introduced a schedule VDA (Virtual Digital Assets). This schedule makes it mandatory for taxpayers to report all their income from cryptocurrencies, NFTs, or other virtual digital assets in their ITR. You can report your crypto income only using ITR-2 and ITR-3.

What is the Role of Taxes on Cryptocurrencies?

Previously, as there was ambiguity on the taxation of digital assets and also there was an absence of any specific provision on the same, so one can tax any profit on the 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 income becomes taxable again.

But now, as per Union Budget 2022, which was proposed on 1.02.2022, Profits 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 the cost of acquisition of such digital asset will be allowed as an expenditure from sale proceeds, and no other expense like or brokerage or depreciation (if any fixed asset like a 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 made on the sale of Digital assets by the platform (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 Rupees one crore rupees in case of business or fifty lakh rupees in case of the profession then TDS will be 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.

When are Bitcoins Taxed?

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:-

1. Anticipating a price drop and selling Bitcoins bought from someone to a third party.
2. Trading the Bitcoins mined for personal benefits, such as buying goods or services.
3. Trading the Bitcoins bought from someone to quench one’s needs through the acquisition of goods or services.

The 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 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 maneuver through the crypto world without any technical predicaments.

What Happens When you Evade Taxes on Cryptocurrencies?

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.

Navigating taxes, particularly with income from various sources like cryptocurrencies, can be complex. But don’t worry—our tax experts can help you with everything related to taxes, right from tax planning to tax filing and notice assistance. ITR filing for FY 24-25 has started. Don't wait for the last date to file ITR. File early and get your refunds faster. Book an Online CA now!