A B C Of CryptoCurrency & their Taxations

Introduction

As we all know cryptocurrency are “The New Thing” in Indian Markets.Most of the youngsters or cyber people who love digitsation are supporting it and are also started trading in the same.For most of the old style people or some newbies it is hard to understand the whole concept.Here I will give a try to make you understand the A B C of Crypto Currency , their trading and their taxation impacts in India.

What is CryptoCurrency & Bitcoin?

Cryptocurrency is nothing but a digital currency.It is a currency associated with the internet that uses cryptography, the process of converting legible information into an almost uncrackable code, to track purchases and transfers.Cryptography was born out of the need for secure communication in the Second World War. The first cryptocurrency was bitcoin  which was created in 2009 and is still the best known.The first Bitcoin specification and proof of concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the project in late 2010 without revealing much about himself. The community has since grown exponentially with many developers working on Bitcoin.

What are Alt Coins/Currencies?

There are hundreds of altcoins (Around 1200), and more appear each day.The word “altcoin” is an abbreviation of “Bitcoin alternative,” and thus describes every single cryptocurrency except for Bitcoin. Altcoins are referred to as Bitcoin alternatives because, at least to some extent, most altcoins hope to either replace or improve upon at least one Bitcoin component. Most altcoins are little more than Bitcoin clones, changing only minor characteristics such as its transactions speed, distribution method, or hashing algorithm. Most of these coins do not survive for very long. One exception is Litecoin, which was one of the first altcoins.

Who Controls the whole Bitcoin Network?

Nobody owns the Bitcoin network much like no one owns the technology behind email. Bitcoin is controlled by all Bitcoin users around the world.In order to stay compatible with each other, all users need to use software complying with the same rules. Bitcoin can only work correctly with a complete consensus among all users. All the transactions are written on two ledgers of blockchain,and is stored their permanently, as it is connected to many users , no one can alter the blockchain and its transactions.More the blockchain confirmation, more is the surety about the transaction success rate.

What is Bitcoin Trading?

Bitcoin Trading is similar to share trading and is done on exchanges.Here we buy currencies and trade on their ups and downs.The easy formula for profit is buy low sell high.Derivatives of crypto are not yet started in India, however exchanges that offer trading are Koinex,CoinDelta etc.(Much of Volume trading happens here, hence trustable.)

What about Taxation in India for Bitcoins?

Bitcoin and other cryptocurrencies are an unregulated market in India. They are not illegal, but the RBI has on several occasions cautioned investors of inherent risks. The government of India is currently considering a framework on these digital currencies.

But in the meantime, anyone who earns any income in Bitcoin, needs to declare their income and pay taxes.But this is also where things start getting confusing for most people.The fact is that, in the absence of any guidelines from CBDT, ICAI, RBI  cryptocurrency investors from India are largely left to figure this out on our own.

According to tax acts in India  any income generated from illegal or legal activities including cryptocurrencies needs to be declared by the individual earning said income and he or she is liable to pay tax on such gains or income earned from these new earning opportunities. 

The fact is that the IT Act does not stop you from earning or profiteering from investments in cryptocurrencies and allows you to declare your gains and pay taxes on it. Therefore, as per a professional tax consultant, the four most common and safe ways of filing your returns after declaring your income from cryptocurrencies are as follows:

Income Treated Capital Gains Income

Even though Bitcoin has not been declared as a capital asset in the absence of any government agency issued guideline, this seems to be the safest bet for most investors. Bitcoins similar to most other assets are usually owned with the expectation that the owner will gain from an increase in its future value.If you are a casual investor in Bitcoins, any profit resulting from sale of your cryptocurrency is taxed as short-term capital gains as per your income tax slab rate. If your income exceeds Rs 10 lakh then there will be a 30 percent tax on the profits plus surcharge and cess.

In case of any long-term capital gains, the tax rate applicable is only 20 percent on your profits. The time period of the asset needs to be considered here while making an assessment and most probably the time period for equity would be used here. You can also account for indexation to reduce your tax burden.

You can also read : Income tax in India ,GST Registration 

Income Treated as Business Income

If you are a Bitcoin trader with substantial and frequent transactions it could be considered as a business  income. Here you can account for your profit and loss accordingly.Here, an applicable rate of income tax as per your income slab will apply.

Income Treated as Professional Income

If you are a blogger, freelancer or consultant earning in Bitcoins, and earning for income from any services rendered to clients in India or abroad.Here, an applicable rate of income tax as per your income slab will apply.

Income Treated as Income from Other Sources

What if you are mining Bitcoins? If you fall under this category of Bitcoin users then you are likely to be only selling and never purchasing any Bitcoins. This is somewhat similar to rendering services as a consultant and earning in Bitcoin with the only difference being that you are not a professional.But there is a different way.You can declare your income from cryptocurrencies under, ‘Income from Other Sources.’You will taxed as per the Income tax slabs and if your income exceeds 10 lakhs, then the applicable tax rate is 30 percent plus surcharge and cess.It is wise to declare your income from Bitcoins in your annual tax returns, and hire an excellent professional tax consultant to do your accounting if you plan on mining, earning or investing regularly in Bitcoins.

GST Applicability on Bitcoins

Even if the  Goods definition is a inclusive definition & can consider digital coin as a good,but taking a view point that as their is no GST on shares or coins or forex similarly as of now from our point of view GST wont be applicable on digital coins.However more light can be put on the same , once government decides about the legality of the same.

As you have read above we have tried to brief whats the taxation in India , however to find out whats taxation in USA, here is good article explaining the same at COINCENTRAL .

Please go through the same to have a insight.

Conclusion:

We here at CONSULTAXX have a experience of filling Income Tax Returns for Crypto trading or Minning Income and are presently giving our advisory and started filing taxation returns for Indian Traders all over India.Our service is completely digitsed and can be availed from anywhere once you have net access.

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