BitCoin Taxation in India: Bitcoin is an innovative payment network and a brand-new type of cash. Bitcoin provides the pledge of lower deal fees than conventional online payment mechanisms and is operated by a decentralized authority, unlike federal government provided currencies. Bitcoin utilizes peer-to-peer innovation to operate without any central authority or banks; managing deals and the releasing of bitcoins is performed collectively by the network. Bitcoin is open-source; its style is public, nobody owns or manages Bitcoin and everybody can participate. Through many of its distinct homes, Bitcoin permits amazing usages that might not be covered by any previous payment system.
- A dispersed, decentralized digital currency system
- Launched by Satoshi Nakamoto in 2008.
- Effectively a bank run by an advertisement hoc network.
- Digital checks
- A dispersed deal log
Material in this Post.
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What is BitCoin
Bitcoins aren’t printed, like rupee or dollars– they’re produced by individuals, and progressively businesses, running computer systems all around the world, utilizing software that solves mathematical problems.
Embracing blockchain technology will improve settlement at lower costs as likewise lower the danger of the occurring of scams.
Size of the BitCoin Economy
- Number of BitCoins in circulation 11.8 million (December 2013)
- Overall variety of BitCoins created can not surpass 21 million
- Typical cost of a Bitcoin:
- 2017- January– $1000
- 2017- December- $17000
BitCoin RBI Cautions
- RBI hasn’t authorised any entity or company to deal with Bitcoin or any other virtual currency in India
- Bitcoin is vulnerable to hacking and malware attacks
- There’s no legal option for any case of Bitcoin fraud
- Bitcoin value is based on ‘speculation’
- Bitcoin exchange platforms are set up in jurisdictions whose legal status is uncertain.
- Bitcoins are used for prohibited and terrorism activities.
BitCoin Taxation
Scenario A: Bitcoin Mining
Bitcoins created by mining are self-generated capital assets. Subsequent sale of such bitcoins would, in the normal course, generate capital gains. The cost of acquisition of a bitcoin can not be identified as it is a self-generated possession. Further, it likewise not fall under the provisions of Section 55 of the Income-tax Act, 1961 which specifically defines the expense of acquisition of certain self-generated assets.
Therefore, the capital gains calculation system stops working following the Supreme Court decision in the case of B.C.Srinivasa Shetty. No capital gains tax would develop on mining of bitcoins.
This position would hold till such time the federal government thinks about creating a modification to Section 55 of the Act.
Situation B: BitCoins held as a Financial investment
- If bitcoins, which are capital assets, have been held as a financial investment and are transferred in exchange for genuine currency.
- The appreciation in worth would trigger a long term capital gain or a short term capital gain depending on the duration of holding of the bitcoin.
- Further, long term gains would be taxed at a flat rate of 20% while short-term gains would be taxed at the specific slab rate.
- The expense of acquisition for reaching long term capital gains will be identified after providing the advantage of indexation.
Circumstance B: BitCoins held as Stock in Trade
The earnings occurring out of bitcoins trading activity would give rise to income from company and appropriately, the earnings arising out of such business would be subject to tax according to the individual piece rates.
Author– By Sourabh Agrawal (Tax Specialist)
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