How Are Bitcoins Taxed In India?

In India, when an asset is bought and sold at a profit, capital gains tax will apply. Capital gains tax is dealt with in different ways, depending on the holding period of the asset and the type of asset.

For equities, more than one year holding is classified as long term capital capital gains, whereas for property the period of long term is classified as more than three years.

In this case, the capital gains on bitcoins is noway going to be classified like equity, and would more or less be in line with long term being classified as a holding period of more than three years.

So, long term gains of 20 per cent, with indexation may be allowed and taxation after that. In case of short term, it may have to be taxed as per the tax slab. So, if you buy and sell bitcoins before three years, you may have to pay tax as per your present slab.

Under which head would bitcoins be classified?

For the purpose, you would first need to understand whether one is a frequent trader in bitcoins or not. Traders would need to show the same under "business income".

Others may have to show them under "income from other sources". As volumes and total traded quantities in bitcoins gains, we would increasingly see guidelines on taxation being set by the authorities.

What is bitcoin all about?

When you buy a product, you need to pay through hard cash, credit card etc. Bitcoins is a medium of exchange and also a store of value. In Japan, you can pay in the form of bitcoins at several lakh establishments in the country.

In India, you cannot do so. It is not recognized as a valid payment system. In fact, in places like China they have been barred by the government. Interestingly, asset management companies may now find it necessary to allocate money to cryptocurrencies like bitcoins.

In India, as mentioned the product for taxation purposes has clearly not been classified. However, you can trade in bitcoins rather actively in India.

Is bitcoin a real bubble?

It is always difficult to predict such things, unless prices have crashed. However, the fact remains that the value of bitcoins in India has rallied to almost Rs 10 lakhs from just about Rs 50,000 a year ago. Does this mean that there is a price bubble that is forming. Really, the basic principle behind any sharp price movement is the fact that demand has outpaced supply.

While suddenly there has been a surge in demand, there is no great supply, which is leading to volatile prices. Ongoing developments in bitcoins is adding to volatility. A classic example, has been the recent futures trading in the commodity on the CBOE.

This results in much more demand and the surge in the price by a staggering 10 per cent, when it opened for trading on the CBOE. Now whether this is a price bubble nobody can predict. At the moment, there is an increasingly high awareness of bitcoins and demand has surged.

This instrument is clearly for those willing to take a bet and somebody who is ready to withstand losses, just in case.

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