The hullabaloo about Crypto Taxes, India!

Published in

Coinmonks

5 min readOct 21, 2021

If you are new to Crypto and are looking to explore and understand the underlying concept behind the technology, I’d recommend you to go through my previous articles to gain some momentum on the topic.

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Crypto has been the most hot shot investment instrument in the recent times. The Pandemic has in-fact expedited its adoption by the curious retail investors which has created further chaos about Crypto Taxes amongst them. I am going to try and relive you off this burden and simplify the speculations around Crypto Taxes in India.

Let us 1st understand how crypto currency is acquired or generated ?

There are 3 primary ways to acquire a cryptocurrency as mentioned below:

Mining : It is an activity where a miner gains crypto assets using their computer prowess by solving puzzles imperative for maintaining the crypto blockchain.
Purchasing them from a Crypto Exchange : Buying it from currency exchanges using real currency and storing it in an online currency wallet in digital form. Some of these exchanges are Binance, CoinDCX, Coinswitch Kuber, Coinbase.
As a Legal Tender : It can be used as a consideration for sales of goods and services, instead of real currency.

Tax implications of Crypto Currency in India:

The RBI is yet to grant any crypto currency the status of a legal tender in India. And, hence there are no clear guidelines defining taxability for cryptocurrencies, which calls for specific clarification from the IT department.

There are various possibilities in which cryptocurrencies can be taxed under the income Tax Act, 1961 as well as the Central Goods & Services Act, 2017, depending on the type of transaction.

Different Crypto Currency Transactions and their tax implications under the Income Tax Act, 1961 :

A. Salary and income from House & Property — Since crypto currencies are not a legal tender yet, employers cannot transfer salary payment using the crypto currencies.

B. Capital Gains — Under Section 2(14) of the Income Tax, any gains arising out of the transfer of crypto currency must be considered as capital gains, if they are held for investments. Based on the duration of investment holding , it would be subjected to Long Term Capital Gain( 20% post indexation ) or short term capital gain(Taxed as per individual tax slab).

C. Gains from Business — Under Section 2(13) of the Income Tax, the receipt of cryptocurrency as consideration for sale of goods and supply of services, and sale and purchase of cryptocurrency as stock in trade are liable for taxation. Any continuous activity like trade in cryptocurrencies is included within this definition, and profits realized are taxable thereunder, chargeable under Section 28 of the Income Tax Act.

D. Cryptocurrency Mining — It is believed that crypto generated from mining will be considered under “Income from other sources”.

E. Receiving Crypto as a gift — Cryptocurrency received as gift will be taxed under income from other sources at concerned slab-rate and cryptocurrency received as gift worth INR 50,000 and above shall be entirely taxable.Some of the plausible exemptions from tax liability on gifts are gifts received:

From relatives
On the occasion of marriage
Under a will or by way of inheritance

Taxation under the CGST Act:

Indian crypto exchanges already charge GST from their users. This indirect tax is included in the trading fee that exchanges add to the buying price of Bitcoin, Ethereum, etc. Furthermore, the exchanges pay GST to the government as part of their general tax payments.

Recently, the Central Economic Intelligence Bureau (CEIB) has raised a proposal to the Central Board for Indirect Taxes and Customs (CBIC) to bring cryptocurrency exchanges and platforms under the GST purview. It has suggested that cryptocurrency mining be treated as a supply of service as it generates cryptocurrency and charges transaction fees, and as such, should classify as an intangible asset and attract a GST of 18 percent. The CEIB has also proposed that the taxpayers operating as cryptocurrency miners will be required to register under GST if their annual revenue exceeds INR 2 million. GST will be liable on the transaction fee and/or the reward, which is the currency mined.

More about Crypto in the upcoming blogs, till then Ciao!

Credits : Indiankanoon.org, Cleartax.in, India-briefing.com, Taxguru.in

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