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How Bitcoins Can Be Taxed in India - Law Times Journal
How Bitcoins Can Be Taxed in India - Law Times Journal
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Ways of Income Tax imposition on Bitcoin-
Being a commercial activity, it is a business. Therefore, like any other business,
whenever there is a profit or loss due to purchasing and selling of bitcoins, income tax
has to be paid. Income tax can be imposed in two ways- One, when the businessman
provides for a mode, where he accepts trading with bitcoins, the income which is
generated by him in this way can be treated as a business income and tax can be
imposed on that business income. Secondly, when a person purchases or sells bitcoins as
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9/11/2020 How Bitcoins can be taxed in India? - Law Times Journal
a commodity, tax can be imposed on the basis of capital gains. In the context of capital x
gains, assuming bitcoins are taxable, the question arises whether they should be treated
as ‘Long term capital gains’ or ‘short term’? The question is important because the rate
of taxation in the case of ‘short term capital gains’ is 30% on the income more than 10
lakh rupees and in the case of ‘long term gains’, it is 20%1. In either case the tax will not
be on bitcoin, but on its rupee equivalent in India. In India, taxation is supervised under
the Income Tax Act, 1981 which takes into account the worldwide income of the
residents of India. They can be considered as a currency, if a law is passed to that effect
in India, as well as a capital asset, both of which can be taxed. As per Indian law when a
capital asset is sold, the profit or gain which arises out of the sale, which is also called
‘capital gains’ is treated as a taxable income2. The tax liability is then calculated by
deducting the cost of acquisition of the capital asset from the sales proceeds and then
applying the rate of tax to the calculated difference. As per the tax code in India,
Incomes, gains and profits are taxable even if they are received in money’s worth
instead of real money or currency, because they can be converted to their real money
equivalent. While cryptocurrency brokers aren’t required to issue 1099 forms3 to clients,
traders are supposed to disclose everything to the IRS or face tax evasion charges.
Taxable transactions include:
Paying for goods or services, such as using Bitcoin to buy a cup of coffee
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9/11/2020 How Bitcoins can be taxed in India? - Law Times Journal
process of mining and selling. Given the nascent state of development of Bitcoin , it is x
going to take time to be accepted as a currency or means of exchange in India. This
particular factor will result in reflex activities like exchanging shifting base outside India
and losses of huge potential tax revenues.
Conclusion-
An Ecosystem of strong regulatory oversight which addresses the challenges of trust,
relevance and sustainability integrating the imperatives of existing economies and
national governance will be able to provide right framework for providing resilience to
market integrity, consumer protection and getting integrated with the mainstream
economic activity. Therefore, there is a need for not only national legal standards to
emerge on operational frameworks of cryptocurrencies but also a global trade order to
evolve regulating cryptocurrencies given its for cross border flows causing large scale
extraterritorial risks.
Reference-
1. https://economictimes.indiatimes.com/wealth/invest/heres-how-to-calculate-tax-
payable-on-your-capital-gains/articleshow/54932358
2. https://groww.in/p/capital-gains-tax/
3. https://www.nerdwallet.com/article/taxes/what-is-1099-tax-form
4. https://www.livemint.com/Politics/UykvUr5hriLFzxv5C03PDO/Budget-2017-Finance-
minister-Arun-Jaitley-may-hike-service.html
5. http://taxindiaupdates.in/section-65-of-finance-act-
1994/#:~:text=%5BDefinitions.&text=financial%20leasing%20services%20including%2
0equipment%20leasing%20and%20hire%2Dpurchase.&text=and%20includes%20servic
es%20as%20a,to%20manufacture%20of%20excisable%20goods.%5D
x
6. https://www.coindesk.com/learn/bitcoin-101/how-bitcoin-mining-works
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