Cryptocurrency and tax: Cryptocurrency as a mode of payment is still at a very nascent stage, but apart from the volatility in the market, there is another question – what will be the tax on the money made by investing in cryptocurrencies? Nothing is very clear on this yet.
Cryptocurrency is a type of digital asset, which can be used for transactions. It can also be used to avail goods and services, however, it cannot be used everywhere like flat currency i.e. Rupee or Dollar. Its acceptance has not increased that much yet. Cryptocurrency payment as a mode of payment is still at a very early stage, but many people are adopting the investment route with the hope of good returns in it. Every day new investors are joining the market. But apart from the volatility in the market, there is another question that worries investors – what will be the tax on the money made by investing in cryptocurrencies? Nothing is very clear on this yet. Even trading in cryptocurrencies has been allowed only last year, however, its regulation is still not done.
RBI ban and Supreme Court order
In April 2018, the Reserve Bank of India issued a circular banning the trading of cryptocurrencies in the country. The circular prohibited banks and financial institutions from dealing in cryptocurrencies. Due to this it happened that crypto investors were not able to transfer money from their bank account to their crypto trading wallet. However, then in March 2020, the Supreme Court rejected this order of RBI. After the decision of the Supreme Court, a petition was filed by the Internet and Mobile Association of India (IMAI). The petition claimed that many companies doing business in digital coins like bitcoin and dodgecoin were harmed by this RBI circular. The Supreme Court order brought relief to crypto investors, others also saw the opportunity in crypto and started investing. did. Now since there is no government control or regulation on the cryptocurrency market, there is no official data on how many investors are there in this sector in India, how many are invested. Now there is talk of taxation.
After the lifting of the ban on cryptocurrency trading, the picture among investors is unclear as to what they have to do with the tax declaration on the income earned from investing in crypto this year. Some people may avoid paying taxes but there is absolutely no sense in it. Income tax rules clearly specify which type of income is not to be taxed and does not include cryptocurrencies.
The tax liability will depend on whether the investor held any cryptocurrency in the form, currency or asset. Section 2 (14) of the Income Tax Act states that any property of a person, even if it is not connected with his business or profession, shall be classified as a capital asset. But, if an investor has continuously invested in crypto, then he can show his profit as business income. If one has invested in virtual assets, it will be treated as capital gain. Income from cryptocurrencies can be declared under the category 'Income from Other Sources'.
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How long has the investment been...
Tax calculation on cryptocurrencies can also be taken into account for how long the investor had invested in it. If the asset has been invested for more than three years, then it will be treated as long term capital gain. If the time is less than three years, it will be seen as short-term capital gain. It can be taxed like capital gains. By the way, while there are no clear guidelines on this issue, it is better that crypto investors should consult their personal tax advisor in this regard before filing their income tax return.
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