Taxability of Bitcoins: All You Need to Know

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Bitcoin is a type of Crypto Currency that was created in 2009 by an unknown person using the alias, Satoshi Nakamoto. New Bitcoins are generated by a competitive and decentralized process called as ‘Mining’. In this mining process, individuals process the transactions and secure the network by using specialized hardware and in exchange, they are awarded new Bitcoins.

Nowadays, the bitcoin courses are also one of the emerging Edutech Areas which is flourishing. There are a lot Companies now offering Bitcoin-related Courses.

Till now, RBI has neither declared cryptocurrencies as illegal nor has accepted these as legal tenders. Further, RBI has clarified that it has not given any licence or authorisation to any entities to operate such schemes or deal with Bitcoins or any virtual currency. RBI has rather cautioned people about the risks associated with virtual currencies.

Whether a Bitcoin would be classified as currency or not is a debatable issue and arguments until RBI clears its stand on it. If RBI declares that Bitcoin is a currency, any trading in it would be subject to FEMA Regulations. However, Bitcoins can be treated as intangible assets.

When it comes to issues related to tax on Bitcoins, income tax is leviable on it since they could be deemed as capital assets if they are purchased for the purpose of investments by the taxpayers. However, if the transactions in bitcoins are substantial and frequent, it could be held that the taxpayer is trading in bitcoins and the sale of such bitcoins would attract income tax under the head ‘business income’.

For Income-tax purposes, situs of an intangible asset may vary according to their nature and obligations attached with them. Situs of intangible properties is well decided on the basis of law of the land where the protection to the property is sought.

If gains arising from transfer of Bitcoins are treated as capital gains, their further classification in to short-term or long-term gain would depend upon the period of holding of Bitcoins.

Further, the Bitcoins earned in the ‘mining’ process are also taxable as business profits. However, if Bitcoins are classified as capital assets, the virtual currency earned from Bitcoin ‘Mining’ may not be charged to tax.

The situs of a property plays an important role in determining the taxability of capital gains arising from sale of that property. Since Bitcoin is an intangible asset, income accruing or arising from its transfer outside India by a person who is not a resident in India cannot be taxed in India. Hence, Sale of Bitcoins by a Non-Resident through an Indian Bitcoin exchange may not be charged to tax.

If Bitcoins are classified as currencies, then it will be considered as ‘Money’ in CGST Act and no GST could be charged on its trading. The exchange of a Bitcoin to Indian Rupees(INR) might be considered as service for the purpose of levy of GST under the category of ‘Financial Services’ for which 18 percent tax is leviable.