Don't be a jerk pay your taxes, most probably your income from Bitcoin will be exempted if its not too much.
Right now the Indian taxation for bitcoin is definitely murky but that does not mean you aren't liable to pay any tax on your profit from Bitcoin. I am expecting DABFI to get officials to push for circular guiding everyone on how we go about the taxation on income from Bitcoin or someone to dispute its taxation in court.
Bitcoin is a software according to laws led by CBDT for now.
In your case you won't have to pay any tax until you sell your bitcoins. When and at what rate you sell your bitcoins is what will decide how much tax shall be paid by you under which head.
If you trade regularly and make profits:
Profit will be treated as Income under Profits and Gains from Business or Profession.
More taxes are attracted if Income fall under this head and your income is above 100K INR (Service tax, GST, Education cess, TDS, list goes on)
Better hire an expert if you trade regularly and make a lot. Not many are sure if their income falls under this head.
If you sell you bitcoins within 12 months of purchase:
Profit will be treated as Income from other sources.
Bitcoin as an asset:
India Accounting Standard 26 Issued by ICAI - Clearly mention software an an intangible asset in point 5 of scope. Hence profits from bitcoin CAN be classified as Capital gains.
If you sell you bitcoins after 12 months but within 36 months of purchase:
Bitcoins can be treated as Intangible asset.
Profit will be treated as Income from Capital Gains (Short term).
If you sell you bitcoins after 36 months of purchase:
Bitcoins can be treated as Intangible asset.
Profit will be treated as Income from Capital Gains (Long term).
This profit will be added to your total taxable income, which then be used to calculate your net tax to be paid.
On the other hand if you wanna be a jerk and not pay your taxes, make all the deals in cash, leave no evidence behind and hope IT dept doesn't knock at your door and you shall be fine.
Enough information about Indian Taxation on Bitcoin is available on this forum but its in bits and pieces. I might make a single topic guiding everyone on Bitcoin taxation in India if I feel the need for it.
Disclaimer: We don't have clear regulations on Bitcoin yet the laws will have to be interpreted in order to fit Bitcoin money into our system and interpretation will be different from person to person. Some interpretation will be more correct than other. I will gladly accept if someone could dispute my above classification by mentioning sections/clauses from IT Act. The court or CBDT will have the final say anyways.
Thank you so much for this comprehensive explanation.
How will we keep track of our bitcoin purchase?It is not possible to remember all our purchase dates particularly if we buy from individuals and in fractions.
Suppose I buy 0.5 btc every 2 month,how will I decide which on I am selling after 12 months and which after 36 months?