A ban would inhibit new applications and solutions from being deployed and would discourage tech startups. It would handicap India from participating in new use cases that cryptocurrencies and tokens offer
The National Association of Software and Service Companies ON CRYPTO-TRADING
Trading on cryptocurrency was recently legalised by the Supreme Court in wake of an order passed by the Reserve Bank of India through circular dated April 6th, 2018. It resulted in all ventures dealing in cryptocurrency losing out a major chunk of business and ensured that all entities regulated by it would not deal in any manner in virtual currencies or through away providing services for facilitating any other enterprise in dealing with or settling those.
All such entities which were already providing such services were told to exit the relationship within three months. The Reserve Bank of India took this step in order to concrete the cautioning of users and traders of virtual currencies regarding multiple and various risks associated with dealing with currencies.
This circular was eventually challenged in the Supreme Court by a group of ventures one of which is The Internet and Mobile Association of India representing various cryptocurrency exchanges. It had argued that trading in such currencies in the absence of a law banning those was a legitimate and ethical business activity in pursuance to which RBI could not have denied them access to any banking channels.
The Income-tax authorities have been allegedly in a secretive way training its officials about the process of investigating cryptocurrencies. An internal guidebook was recently issued by the authority explaining cryptocurrencies, factors affecting their trade and the dark sides of bitcoin. The guideline also had the best investigative practices covered in pursuance to the same.
The Indian government has not considered cryptocurrencies as legal tender for a long period of time, but it also hasn’t declared them outright illegal barring the notification issued by the central bank in the year 2018 which faced a hit by the Supreme Court recently. Considering all ambiguous factors Crypto investors are therefore still doubtful and are in a dilemma on how to protect their investments in their annual income tax returns. Due to such circumstances, earning through cryptocurrencies is a grey area for the Indian crypto community.
Taxation Policy on Crypto Trading
CryptoCurrency as Capital Asset
Cryptocurrency generated via the medium of mining are self generated assets. In general sense sale of such bitcoins would give rise to capital gains. Nevertheless, in case of acquiring bitcoins, the cost of acquisition cannot be determined. Also, it does not fall under Section 55 of the Income Tax Act,1961 as it deals only with the cost of acquisition of self-generated assets.
No capital gains computation mechanism would align with the Supreme Court judgment in case of B.C Srinivasa Shetty. Therefore, to conclude no capital gains tax would be imposed on the aspect of mining of cryptocurrency.
CryptoCurrency as investment
In case of bitcoins held as investment tools transferred in exchange for real currency, if there is an upsurge or appreciation in value, it would result in a long term capital gain or on the other hand short term capital gain. For the purpose of taxation on long term capital gain, 20% would chargeable on it. If it is short term capital gain, then taxes would be according to individual tax slabs.
In the case of long term capital gains, the cost of acquisition would be determined after having been given the benefit of indexation. Nevertheless, in the case of short term capital gain following illustration would be of help, In a case where taxable income of an individual exceeds Rs.10 Lakh, he would come under the bracket of 30% taxation, as against the flat rate of 20% he would be liable to pay if charged under long-term capital gain.
CryptoCurrency as stock-in-trading
In case of income being generated by holding cryptocurrency as stock-in-trade transferred in exchange for real currency, taxation would exist according to individual slab rates.
Cryptocurrency as quid pro quo
In the case of bitcoins being received in order for them to be treated with receipt of money, it would generate income in the hands of the person receiving the money by selling the bitcoin. Therefore, since the individual is receiving money out of a business, he would be taxed, normally under the bracket of profit or gains.
Nevertheless, in the status quo, multiple experts are of the opinion that a centralised policy needs to be framed by the central government in collaboration with the central bank of the country as not only people are unknown and confused with regards to filing of taxes on income generated through crypto trading but also the income tax authorities are in dilemma with regards to the same. If the penalising authority is in confusion, then it makes it very difficult for the individuals in the profession of trading to abide by the same.
Nevertheless, there are certain professionals like WazirX’s Patel who believes that cryptocurrencies should be considered as capital assets and therefore be declared when filing your tax returns.
Another Mumbai-based Charted Accountant in any anonymous manner has told Gadgets 360 that people should be declaring it under the bracket of income from other sources and pay flat 30 per cent tax.
According to the same CA, it is not a valid and legitimate type of currency, hence, it should be covered under 30 per cent bracket.
The CEO of cryptocurrency exchange Koinex Mr.Rahul Raj in an interview to Gadgets 360 said that “Since there is no regulatory certainty and other than the notices there has been no clarity on how the government wants to tax the cryptocurrencies.
Therefore, umbrella legislation on the same is the only way out to eliminate ambiguities.