As much popularity Cryptocurrency has gained among the marketeers, Crypto Tax still falls under the grey area of Income Tax Authorities of India and the RBI. Even though it has been years since we have had Cryptocurrency among us, the Indian Government still fails to regulate the income generated through investing or trading in Cryptocurrency. And it’s not that there are no responses at all, Income Tax Authorities did drop a hint on how they would tax income from Crypto.
Although, in the midst of all of the confusion, one thing is clear. The tax on the gains made through Cryptocurrency must be paid, there is no way around that.
Because according to our Income Tax laws we must pay the taxes on every one of our incomes. Except for the ones which are mentioned as exemptions in Section 10 of the Income Tax Department.
Cryptocurrency can provide gains in many different ways, and each of them has to be taxed accordingly. For Example, the mining of Cryptocurrency would come in the head of self-generated Capital Assets, while crypto gains made within three years of buying should be considered short-term capital gains.
7 Most Common FAQs regarding Crypto Tax in India:
1: Do I need to pay any Crypto Tax on the gains I made through trading on Bitcoins?
Ans: Yes, you definitely have to pay the taxes on the gains you made through trading on Bitcoins. Since Bitcoin is an asset, and the gains were made through trading.
It would come under the head of short-term capital gains which should be taxed with your business income according to your slab rates. But as mentioned earlier, taxation on Crypto is a grey area, your gains could be termed as “Income from other sources” also. But till the time those rules are formally stated by the Government authorities, you must pay taxes under the first scheme. That considers your gains as short-term capital gains.
2: I had Invested 50,000 in Bitcoins in 2015, its current value is somewhere around 87 Lacs. How much Crypto Tax would I be paying if I decide to book my profits in full?
Ans: Your total investment period is around 6 years. That brings your gains under the head of Long-Term Capital Gains which are taxed at a flat 20% for everyone. So, the total tax you’ll be paying will be 17,30,000 Rupees.
3: I have been earning around 20,000 for the past 4 months by mining Bitcoins. Do I need to pay taxes on my earnings?
Ans: Taxation on income generated through the mining of Bitcoins isn’t determined yet by the Indian Government. Gains through the mining of Bitcoins should come under the head of Self-generated Assets. But for such assets, the Supreme Court of India has fixed the cost of acquisition of certain self-generated assets. Which is yet not given for crypto gains through mining. So, until the time Government comes with a specific set of guidelines, you are not liable to pay any taxes.
4: What will happen if I don’t pay taxes on my Crypto Gains through investing?
Ans: The money you made through Investing in Crypto, would be considered black money. Because, when your statements are checked by the Income Tax Authorities, you won’t be able to provide them any tax receipts for those gains. After that, you’ll have to pay the taxes on the total amount along with the penalties.
5: What kind of taxes would I have to pay if I trade on a Foreign Cryptocurrency Exchange?
Ans: Currently there is no difference between taxes levied through transactions with Foreign Cryptocurrency Exchanges or Domestic Cryptocurrency Exchanges.
It is not legally passed yet, but the Indian Government is planning on passing an Equalisation levy of 2% for transactions made through Foreign Exchanges. It is levied for foreign tech companies and might make trading on crypto through Foreign Exchanges costlier than the Domestic ones.
6: I have been earning via trading on Cryptocurrency for the past 3 years and have not paid a single rupee in tax. Should I be worried?
Ans: Yes! If you haven’t paid any tax on your trading income on crypto for the past 3 years, you might have accumulated a lot of Black Money. Or if your gains aren’t substantial enough for them to come under the eyes of the tax authorities. There could be another case. In trading, you can set off your gains through the losses you have made. Probably, you haven’t had any trouble yet because your gains have been set off by your losses. Either way, you should contact a qualified person who can analyze your case. Or you might find yourself in a shit load of trouble.
7: How can I categorize if my gains on Crypto are short-term or long-term?
Ans: If you booked your profits within 3 years of your purchase, it would be termed as short-term capital gain. Otherwise, if the holding period is more than 3 years, it would come under long-term capital gains.