Bitcoin is an independent currency, and this is what everyone knows since the inception of bitcoin. It doesn’t involve any banks or government in its working and work independently. Due to the scarcity and volatile market of bitcoin, it is considered both stores of value and payment method. Some people invest in bitcoin by viewing it as a safe-haven asset, while some use bitcoin as a medium of exchange because of its features of transparency and anonymity. But everyone has different opinions or views about bitcoin, and even each country has different rules and regulations on cryptocurrencies.
Earlier, bitcoin had no control of the government in its working, but because of its volatile market, governments of some countries have made cryptocurrencies taxable. Therefore, before you invest or trade bitcoin, it is essential to know how your profits will be taxed in your country. If we talk primarily about India, many traders have doubts concerning the taxability of digital currencies. Indeed it will be taxed under speculative transactions or income from different sources as bitcoin is not recognized as a currency. Trading bitcoin isn’t easy as it requires knowledge and experience. You can make use of bitcoin trading tool by visiting bitqh.net.
Indian cryptocurrency market
Around 8 million crypto investors in the Indian crypto market hold about $1 billion of bitcoin investments cooperatively, as per the estimates made by unofficial organizations. Even though there is regulatory uncertainty present in India, nothing is as inevitable as taxes. The profits that traders earn by trading cryptocurrencies are subject to taxes in India. For traders, it is important to learn how their profits and income generated from crypto traded are taxed.
Income Tax Act, India
Anurag Singh Thakur, MoS for Finance in Rajya Sabha, intricate the current taxability status. He stated that according to Section 5 of the Income Tax Act 1961, an individual’s overall income would comprise all their earnings regardless of the source of income. This depicts that all the earnings of an individual gathered from crypto-related activities will be added to their taxable income. Additionally, the business activities that are related to crypto-assets are taxable in Goods and Service Tax.
Along with this, the government also stated that they aren’t maintaining any official database concerning the crypto earning of Indian traders currently. Even there aren’t any changes made in the Income Tax Act that will include the cryptocurrencies with a proper definition of all capital assets. The crypto experts of India and legal authorities state that cryptocurrencies will be taxable for sure.
How will earnings made from cryptocurrencies be taxed?
As discussed above, there aren’t any amendments made in the Income Tax Act now, but the crypto analysts have pictured some scenarios where it will be clear how crypto assets can be taxed specifically in India. Let’s learn about each of these scenarios.
- Mining Bitcoins
The best and oldest way to acquire bitcoins is to mine them. However, the miners require high computing power to solve complicated mathematical equations with a hash solution. This requires high processing energy and electricity consumption that makes the entire process expensive. As per the 2021 report generated by Cambridge Centre, it is estimated that all the economies have different annual electricity consumption. For example, China’s annual electricity consumption is 6543 TWH, whereas, for Bangladesh, it is 70 TWH.
- Bitcoin as an investment
Bitcoin makes a great store of value, and according to the holding duration of bitcoins by investors, these will be subjected to taxation under short-term or long-term capital gains. But as in some countries or economies, these aren’t considered capital assets; in that case, bitcoins will be taxed under income generated from other sources. Thus, the tax rate will be equal to the taxation slab of the individual.
According to the government notification of 2021, bitcoin trading will be categorized as the income generated by the business, and that will be taxable according to the category of tax slab under which the individual falls.
Indian traders constitute 10% of global bitcoin trading, and with accounting for this percentage, tax regulations are forthcoming. However, the government bodies and the central bank of India maintain a neutral posture on cryptocurrencies, and it is yet to see the chances for cryptocurrencies in the Indian tax system.