The BuyT desk
Bitcoin is scaling new heights daily. It is getting geared up for breaking the Rs 30 lakh level. In all probability by the time you read this piece, it would have crossed this mark too. The price journey of bitcoin has been with many ups and downs. The currency was created in 2009 when it was valued at $0, for a few years after, it remained to be of few dollars. In December 2017, bitcoin touched a $19,500 and saw a nasty fall to $4000 in 2018. But 2020 proved to be the year of record return for bitcoins. It almost rose by 300% and in the first month of 2021, we saw it crossing $40,000.
Due to the grand return of cryptocurrency, lots of people are looking at it as an investment. But before you take the plunge you must know that though bitcoin is not illegal, they are not recognised yet. In March 2020, Supreme court lifted the ban on the trading of cryptocurrency imposed by the RBI. But there is no regulatory body which overlooks the trade in bitcoin. RBI has not yet given the status of legal tender to bitcoins.
Are bitcoin profit taxed?
The Income Tax law is ambiguous regarding how a cryptocurrency profit like a bitcoin will be taxed? But if you are earning a profit on it then be ready to pay tax too. There could be two ways that the profit will be taxed- either under capital gains or under the category of income from other sources.
Capital Gains Tax
If you have purchased a bitcoin and treat it as a capital asset, it will be taxed as per the capital gains tax rule. If held for more than 3 years, then the long-term gains would be taxed at a flat rate of 20% while short-term gains would be taxed as per the individual’s slab rate. If you are selling it after holding the bitcoins for three years, you will benefit from indexation.
Income from Other sources
What if you have not purchased the bitcoin? Bitcoins can be created through mining. So one cannot determine the cost of purchase as it is self-generated. So capital gains can not be implemented. In a scenario like this, bitcoin’s value will be taxed under the head Income from other sources when capital gain doesn’t imply.
GST on Bitcoin
Government has been considering a proposal by the Central Board of Indirect Taxes and Custom(CBIC) on imposing a GST of 18% on a bitcoin transaction. The Central Economic Intelligence Bureau has estimated tax collection from GST and informed CBIC that government could potentially gain Rs7200 crore annually by imposing GST. The government is mulling on categorising bitcoin as ‘intangible asset’ and impose GST on its trading.
