Topic: [GUIDE] How Bitcoin and Cryptocurrencies are taxed in India? (Read 17648 times)

IS 1% TDS on purchasing crypto and transferring to non custodial wallet applicable? or TDS is only applicable when you sell.

In Germany they are taxable. It doesnt matter which to which you convert. But if you make profits on #ShibaInu or #UkraInu if will be so big that you dont have to worry hopefully!

Hello BTT family,
What if bitcoin was legal in India?
When there is talk of cryptocurrency, how bitcoin can be excluded from the discussion. Right? As bitcoin has shown the entire world of investment that cryptocurrency can give high value return on investment. The highest ROI given by bitcoin in last 10 years than anyother project.
So if bitcoin becomes legal in India it could benefit everyone in the country like firstly the government. Government can make it legal or regularise so that it can earn from the tax which can help in economic growth and development of the country. Moreover India which in last 6 years has encouraged online transactions through UPI payments want to make aware of online transactions and which has been a great success. As government encourages online transactions next could be cryptocurrency. As I think so let's see. What you think about it?
Secondly India which has so much potential young youths in every field and sees opportunities in new sectors for growth. Bitcoin launching could provide a great opportunity for these young youths for there personal and financial growths.
Third is mining of bitcoin on a large scale should be encouraged with the help of renewable energy sources like wind, solar, hydro. This type of mining could increase in rise of new mining companies and which in return would provide good job opportunities.
This type of mining could control pollution also thus not harming our environment and this is good news for every one
So more jobs, new online transactions in form of cryptocurrency/ bitcoin, new companies, less pollution. Isn't this futuristic?
That's why I believe Bitcoin/cryptocurrency is future of our world.
Indian government do it fast don't be late on this.
Thanks guys for reading my views.
Was it good? I'm open to feedbacks  and discussion.

I've only entered into crypto very recently and had a question.

If I swap BTC or an altcoin for a stablecoin like USDT or USDC or DAI.

Is that swap considered a taxable event?

Or only If i convert that stablecoin into INR?

The reason I ask is I was listening to a podcast/interview recently and the person mentioned that even these conversions into stables is a taxable event. Of course he was talking about UK tax laws.

Any thoughts?

Nice Hard-Work, Webtricks

Well & very clearly explained, how to legalise Crypto Income.....
We have referred your topic in our thread.

That cleared a whole lotta doubts for me, thank you webtricks, really appreciate this. My notion regarding moving coins to secure wallets was that the exchanges ideally have the transaction history - wallet address that you're moving it to for HODLing and that they will share it with the concerned authorities so they tax you even when it's not converted to fiat, that they'll be able to identify who it is by investigating the blockchain leading to the wallet. It's cleared now, thank you once again.

Hey, welcome to the forum! I'm glad you liked the topic.


Yeah! This will be one time taxable event. You will only be liable to pay tax on the profit made i.e. the difference between the amount you withdraw from WazirX and the amount you sent to another person in P2P trade. If you are fine paying tax and only want to hold bitcoins then you don't even need P2P. You can purchase bitcoins via WazirX/Binance, send those to your private wallet and hold for as long as you want, no one will ask you a question. Transfer those btc back to Binance, sell and withdraw. It will still be one taxable event which can be short-term or long-term capital gain depending upon the holding period.


If you have done KYC on Binance then all of your crypto transactions are separate taxable events. Suppose, you buy BTC worth $5000 by depositing Rs. 3.75 lakh and sell it for $7000 on Binance few months later and buy ETH with the proceeds. Then, you sell ETH after few months for $10000. Then, finally withdraw Rs. 8 lakh to your bank. Here, you have made 2 taxable events:

1. Bitcoin buy/sell = Suppose, USD worth Rs. 76 on the day you sell btc. Then, your profit = 7000*76 - 3,75,000 = 5,32,000 - 3,75,000 = 1,57,000
2. Ether buy/sell = profit = 8,00,000 - 5,32,000 = 2,68,000

Another factor to consider here is the timing of the transactions. If all transactions are made in a single financial year then you can report all transactions as a single taxable event. Income Tax Act gives you option to report all your short-term capital gains from a single source as a single transaction. So, suppose you buy btc on 25th May, 2021 and sell it for eth on 29th Sep, 2021 and finally sell eth on 3rd Feb, 2022 and withdraw the final balance to bank on the same day then you can simply report the whole transaction as single-event in your income tax return as STCG:

Sale of cryptocurrencies:
Net Proceeds = 8,00,000
Purchase Price = 3,75,000
Profit = 4,25,000

But imagine that from the above example, you don't sell eth on 3rd Feb, 2022. Instead, you sell it on 15th April, 2022. Now, this transaction becomes the taxable event of Financial Year 2022-23. So, you have to report the profit on btc sale of Rs. 1,57,000 in Financial Year 2021-22 (even if you haven't withdrawn any money to the bank) and the profit on eth of Rs. 2,68,000 in Financial Year 2022-23 as two separate events.

Hope this clears some things for you. You are welcome to ask more doubts.
And the most important thing: Government can (may) bring strict guidelines for the crypto transactions anytime with a law. Whatever, I have written above and in this topic may become entirely irrelevant if government decides to specifically provides rules for crypto transactions. Let's see how it rolls. For the time being, this is the best way you can report your crypto transactions, pay tax and remain outside the radar of authorities.

First of all thank you webtricks for all that gold information. Crypto Noob here so hoping you can clear some of my doubts regarding this. Recently got into bitcoin and got myself registered on wazirx and binance to buy bitcoin and HODL, unfortunately I KYC'd on both and connected both the accounts. After doing some research on tax and other things, I realised it's better to buy it P2P, please correct me If I'm wrong here.

You mentioned that ""Since bitcoin has no legal/illegal status in India, you don't have to pay tax on keeping/holding bitcoin. You may have 0.001 or 100 BTC in your wallet but no tax to be levied as far as amount is kept in the form of Bitcoin. Bitcoin is currently considered at par with securities such as shares for taxation purpose." and  "Whenever you convert your crypto holding to Indian Rupee and you have made some profit/income, you have to pay tax"

So the question is if I'm planning to buy bitcoin via P2P, transfer it to my wallet and HODL for as long as I want and then when I want to sell it, transfer it to binance, convert BTC > USDT and then transfer it to wazirx and convert USDT > INR and withdraw it what will be the implications? will it be a one time taxable event? what is better way to approach this if I'm HODLing? should I resort to buying through exchanges? (I'm worried about the new cryptocurrency ban in India)

Also "Number One: You receive $5000 worth BTC in private wallet (such as MyCelium or Electrum) and then you send BTC to Crypto-to-Crypto Exchange where you haven't done KYC like Binance. Then you exchange ETH to BTC on Binance. Finally, you send those ETH to exchange like WazirX and convert those to INR."

Q. in the above case If KYC has been done with binance then how to proceed?

sorry for these noob questions, hope you can answer them, thanks.

Hey Rahul,

Government hasn't announced the GST guidelines for the trading of cryptocurrencies yet. In the absence of any guideline, I consider 'trading of cryptocurrencies' equivalent to the 'trading of shares/securities'. As per GST law, shares and securities are not included in the definition of 'Goods'. So going by the definition of 'Goods', trading of cryptocurrencies for time being doesn't come under the purview of GST. Hence, you needn't pay and file GST returns for your buy/sell transactions even though your turnover is above Rs. 40 lakh.

The only cases when you are required to pay GST is when you are carrying professional or normal business and making taxable supply in excess to Rs. 20 lakh and 40 lakh respectively and receiving payments in bitcoins.

I am a new trader of BTC with a turnover of 1 lakh daily , which would make the turnover around 4 crores yearly , which obviously comes under the purview of GST .

But my question is ,since we do not receive any INPUT on our BTC purchase , its literally impossible to pay any GST on the sale of BTC .

The point of paying tax on the income of this trading is clear , but what should I do regarding GST and taxes ??

Sorry for the late reply. Yes! 'Other professional services' sounds fine if you are filing under the section 44ADA. But few days ago, me and teosanru were having discussion on this topic. Although most of the CAs suggest to go for 44ADA but thinking from pure technical view, 44AD is more appropriate. 44AD unlike 44ADA, is a general presumptive income scheme and covers all type of businesses. I have few clients who receive crypto incomes. I have scheduled the filing of their income tax returns in October. So, I will once again study everything in deep next month and try to figure out best possible way to report crypto income and then update the details in this thread as well.

As far as nature of business is concerned, the following two are most appropriate depending upon which type of income forms bigger part of your total income:
Engineering and technical consultancy - 16005
Other Software consultancy - 14002

Do you know any online CA's that are reputed and can help one file a return? I would try cleartax but I still think that it requires a bit of information and don't want to end up doing something which I later regret. Also, what nature of business does freelancing comes under if you were to file your return using 44ADA? Do you think '16019 – Other professional services n.e.c.' would be okay?

Thanks for the wonderful knowledge. That is seriously a great information for anyone who is looking to start crypto trading and looking to pay tax legally in india.
I have pmed you regarding some doubts. I hope you don't mind. 

This is a major issue generally faced by all the traders even those who trade on stock exchanges. Now my Opinion would be based on my Understanding of the Tax Laws and it's application with the current legal scenario of Bitcoin. It will be well backed by provisions so you definitely can make a case using it. So:

INCOME TAX
1. For stock traders there is a case law by Supreme Court where they determined that turnover of Intraday/derivative traders is to be calculated in a different manner.  Irrespective of how much you brought or sold. This is the manner of calculation:

 (i)You calculate profit/loss you had each day after squaring off the position.
 (ii)Total up all your profits and losses, by taking losses as positive. For Eg. these were your profits/:
          Profit/Loss             Turnover
Day 1:  ₹50000- Profit         50000
Day 2:  ₹40000-Profit          40000
Day 3:  ₹(30000)-Loss         30000
Day 4:  ₹(30000)-Loss         30000
Day 5:   NIL                        NIL
Day 6:  ₹20000-profit          20000
Total:   ₹50000-Profit          170000

Therefore your turnover was 1,70,000 while profit was 50k.

Pay Income Tax on 50k Accordingly and check applicability of Tax Audit according to Turnover calculated in this manner. You won't find this anywhere in the Income Tax Act/ Rules but Supreme court upheld this in case of F&O and is a very widely accepted practice for people who do F&O. But remember this was upheld by SC in that because they were of the opinion that no actual delivery took place. Same might not be accepted in case your AO is adamant in considering bitcoin a commodity rather than a Security. In such a case you might need to sum up the amount of Bitcoin you sell everyday. No matter if it reaches 21 Crores(considering 5-6 lakhs everyday). in such a case you might even need to get Books of accounts audited by a Chartered Accountant. But I would prefer you to go with the first option in my Opinion Supreme court did classify cryptocurrencies as Virtual "Currency"

GST

This is a much tedious issue than Income tax. if you consider Bitcoin as a "security" then it's exempt from GST hence no GST is chargeable. But definition of securities are to be read from securities from  Securities Contracts (Regulation) Act, 1956 which states securities include:
Now as you can see bitcoin isn't a security so GST is definitely applicable. Once again issues comes upon Turnover which as per me should be calculated in a similar fashion. So take GST number only when your sales exceed 20 Lakhs.

Registration as firm
Practically there is no registration for a sole proprietor except if required under GST. But so far I don't think you need any separate firm or something. Just open a separate bank account, current account is advisable not at all mandatory(You might need letter head/CA Certificate for current account). Make transactions from this account only.

This answer is based on examination of bare facts that you have presented to me. I would prefer if you PM me in case you need specific assistance with specific facts as interpretation might change in those circumstances.

First of all thanks for the great insight. 
I do have some doubts regarding crypro trading which I think you might have answers.
I want to start trading bitcoin on p2p website like paxful and lbc.
My projection is that my daily turnover would be 5-6 Lakh INR.
So is it better to start proprietorship firm and do transaction in the name of firm? If yes would I need to register for GST number?
So would I need current account for this much transaction?

Thanks.
 

Great thanks for adding.


Another important doubt here.


you said all the transactions will be paid as regular income of the year under normal slab but can we mention these transactions in the itr file returns......... or how to mention this income source............?


Thanks!

Right! I have updated FAQ, here is the excerpt of the same:

Ok you mean if we get the free lance income in bitcoins then if i convert to any other cryptos and that cryptos conveted to INR later will be treated as normal bracket right i mean we no need to pay capital gains rather we should pay regular taxes on the income right......?


Please update this line in your FAQ's there are many people having this doubt that they are thinking that it is also treated as capital gains but it is treated as normal tax as you said i request to please update the FAQ's thanks!


Thanks!

If I am understanding correctly then you are saying that you received $5000 as your freelancing fees and then you invested that income in other coin, say ETH, right? Now read the details below carefully. I hope it will help you.

See in this situation, theoretically there are two taxable events arising:

• First when you received freelancer payment, you made the income of $5000 hence tax is payable on $5000.
• Second when you bought ETH, you are now investing as an investor. Imagine you sold ETH for $5500. So any profit you made over and above $5000 i.e. $500 will be taxable as capital gains.
  

This should be correct taxable treatment for your case:

• Suppose exchange rate was $1 = ₹78  on the day when you received freelancer payment. Hence, your income will be 5000*78 = ₹3,90,000. So tax as per normal bracket is payable on ₹3,90,000
• Suppose exchange rate was $1 = ₹75 when you finally sold the ETH. Hence, your profit on investment will be (5500*75) - (5000*78) = ₹22,500. So tax as per capital gains is payable on ₹22,500.

---

The above treatment I described is as per normal currency i.e. fiat currency i.e. INR or USD. However, we are dealing here with more complex issue i.e. cryptocurrency. So overall, we can eliminate first taxable event if we like as we are dealing in cryptocurrencies. Consider the following two situations:

Number One: You receive $5000 worth BTC in private wallet (such as MyCelium or Electrum) and then you send BTC to Crypto-to-Crypto Exchange where you haven't done KYC like Binance. Then you exchange ETH to BTC on Binance. Finally, you send those ETH to exchange like WazirX and convert those to INR.

Number Two: You receive $5000 worth BTC in Exchange wallet like WazirX directly. There you convert BTC to ETH and keep ETH on WazirX as well. Finally you sell ETH on WazirX for INR.

Now note: In case of 'Number Two' situation, you have to follow the treatment I described in first half of my post. You should consider your whole trade as two taxable events because you have done KYC with WazirX and they have record of your all transactions. But in case of 'Number One' situation, your first taxable event is completely anonymous so rather than showing whole trade as two taxable events, you can simply show the final conversion i.e. selling ETH for INR as you income and pay tax as per normal bracket on 5500*75 = ₹4,12,500. No need to show capital gain transaction at all.

I hope it clears most of your doubts.