04 Oct
Crypto currency and crypto currency taxes under income tax
Crypto
currency and crypto currency taxes under income tax
Crypto currency is a digital, decentralized currency that is
issued by a private enterprise to act as an idea of a transaction between two
individuals or businesses without direct government intervention. There are
about 4000 different crypto currencies in the world and about 15 million people
have invested $ 1.36 billion in crypto currencies in India. Some of the famous
crypto currencies are Bit coins, Doge coins, Etherium etc.
In India, there are no specific rules or guidelines by the
RBI, the Central Government or any other financial regulatory body that can
declare or regulate crypto currencies in India. The RBI has imposed a complete
ban on crypto currency on April 6, 2018, and has instructed financial
institutions not to make or accept any payments in this regard.
However, on March 4, 2020, in the case of The Internet and
the Mobile Association of India v. Reserve Bank of India, the Supreme Court
lifted these restrictions and deemed them illegal and unenforceable. In this
way, it gives some kind of legitimacy to crypto currency in India.
How crypto currency works in India
Crypto currencies are sold in India in two ways
1. By Mining: This process is a sophisticated, costly and
time-consuming process where the trader earns crypto without investing money.
They have to solve complex mathematical equations with computer programs. A
small amount of crypto currency is obtained in exchange for the first coder
cracking the code to authenticate and verify the transaction and then adding it
to a public ledger called a block chain.
2. by exchanges: Crypto currency exchanges can be broadly
divided into 3 types
(i) Centralized exchange
Centralized exchanges are the most accepted and used forms of
crypto currency in the world that is regulated directly by the central
authority. They offer high liquidity rates and fast transactions.
(ii) Decentralized exchange
The system is a peer-to-peer marketplace that connects
sellers to buyers or investors without any intermediaries or regulatory
intervention. They provide higher security, transparency and more control over
trade and allow users privacy.
(iii) Hybrid exchange
It has both the advantages of centralized and decentralized crypto currency by merging privacy and security and offers a highly fluid, fast transaction and regulation framework. They allow users to take custody of their funds, even with the involvement of third parties.
Taxability of crypto currency in India
Crypto currencies are taxable based on the
nature of their investment
1. Currency: Profits from the sale of crypto currency may be
taxable under business income if it is kept for commercial purposes and is
frequently traded. Profit will be taken according to the slab rates applicable
according to the nature of the individual.
2. Assets: Profits from the sale of crypto currencies are taxable as capital gains if kept for investment purposes. If the variables are kept for 3 years, they will be treated as Short Term Capital Profit (STCG). And if it is kept for more than 3 years, it will be taxed at a 20% rate (LTCG) with indexation.
Disclosure
If investors with an annual income of more than Rs 50 lakh
are required to disclose their assets and liabilities along with the cost of
acquisition and the amount of currency they have. In addition, taxpayers who
are residents and ordinary residents have disclosed their foreign income assets
in their annual returns
For more information contact the author on santoshpatil@alltaxfin.com or 9769201316
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