Understanding Taxation of Bitcoin in India

Bitcoin is being invested in for gains as well as some of the tech savvy even accepted them for payments or financial consideration for the goods and services even in India. Though this is still to gain pace in India in coming times as still practically the landscape for its acceptance is not established yet.

So, tax on a bitcoin tramsaction arises either by way of capital gains tax when the investor earns profit due to appreciation in its price. Recently the bitcoin surged to highs of 3.5 lakh rupees. And the other is when a trader accepts payment in bitcoins.

Taxation when goods or service are bartered for bitcoins or business income for bitcoins

To understand it better here is an illustration say when you as a tech freak or a provider of some service to a foreign nation receives the fee in lieu of the same as bitcoin, Indian law provides that even such receipts are taxable.

For it profits to you are arrived at by accounting for the bitcoin value in Indian rupees less the cost of goods or any deductible in respect of some service.

The same profit is then taxed as per the individual's tax slab rate as per the Indian tax laws.

Taxation implications also arise on conversion of bitcoins into Indian rupees

As the adoption of bitcoins is still to gain ground in the Indian context, it may be a case that an individual may need to convert his or her bitcoin holding into Indian rupees and then use the same. In such a case, the bitcoin value in the rupee at the time when one received the cryptocurrency is factored in to arrive at the net tax liability.

Say if the bitcoin at the time of receipt was valued at Rs. 20000 and now at the exchange into Indian currency is Rs. 29800 then his capital gains liability shall be on Rs. 9800.

In respect of capital gains tax on bitcoins, an expert has cited that Short-term capital gains are taxed at the applicable I-T slab rate, which for those with a taxable income of more than Rs 10 lakh is 30% plus applicable surcharge and cess.

On the other hand, long-term capital gains (LTCGs) attract a tax rate of only 20%. The time period for which an asset is held before its sale determines whether it is a longterm asset that is eligible for a lower rate of tax on sale. For equity , the holding period prescribed is just 12 months. "The period of holding of bitcoins should be like any other property. If they are held for three years or more, it should be considered longterm and if less than shortterm".