For an investor, Forex is a big market to invest in. It encompasses a range of currencies like USD, EUR, GBP or JPY, etc. An investor can invest in these currencies for the long term or can trade in them for gains, as they represent real money. Income from these recognized foreign currencies is legible and is taxable in the hands of the taxpayer as per the Indian income tax rules.
Apart from these recognized Forex currencies, some special currencies are traded or are held as investments through the other world currency markets or some digital lockers. These currencies include cryptocurrencies like Bitcoin, Ethereum, Bitcoin, etc.
Indians who investing for the long term in cryptocurrencies or are receiving gains from these have to certainly comply with some norms of government and the taxation authorities.
In this post, you will get to know what all tax implications are to be dealt with when you plan to earn by way of crypto trading or by keeping it as a unit of investment for extra earnings.
About Cryptocurrency
Cryptocurrency is often known as crypto is a secure way of keeping some encrypted files that are treated as real money in a virtual world of the internet. These currencies are held, traded, or transacted in an encrypted format with a list of secure codes and complicated algorithms which are difficult to understand.
These currencies are also titled virtual, alternative, or digital currencies. These currencies are not printed or are not held as real coins; rather they are created by following computerized procedures of encrypting or decrypting some complex codes, transactions, and algorithms through mining or trading.
Is crypto a commodity or currency: Indian law perspective
The concept of crypto is still new to the Indian legal system. The existing provisions of the Indian tax laws do not provide any explicit definition of the term cryptocurrency.
Till a definite decree for cryptocurrency is put in place, no income from these currencies or the assessment of the taxpayer be skipped out from the income tax levy. As per current rules, income from crypto has been considered as some sort of foreign income of the taxpayer which can either be taxed as the Income from Business or Profession or as Income from other sources.
Taxability of Cryptocurrency
The taxability of income from cryptocurrency can be distinguished based on:
- The currency usage of cryptocurrency for transacting against a particular commodity,
- Usage of the currency itself as a commodity for trading,
- Income from the generation of cryptocurrency to hold or sell,
- Receipt of currency as a gift.
All these scenarios have been explained below:
- The currency usage for transacting against a particular commodity: Any payment by way of cryptocurrency as consideration for some goods or services shall be considered as equivalent to receipt of money from debtors in a non-convertible currency format. Also, any fluctuation (loss or gain) in between these transactions in the money value of the currency shall be considered as taxable under the head Income from Business or Profession.
- For transacting cryptocurrencies like a commodity: In case crypto is held in stock for appreciation or like a benefit or is traded like a commodity, any income receipt in such cases shall be considered as income from business or profits. Also, there is no mention of crypto trading as speculative transactions, hence it can be considered as a non-speculative business.
- 3. Income from generation (mining) activities of cryptocurrency: Gains made by way of generation of cryptocurrency through use of computers or Hitech devices, shall also be taxable as Income from other sources. Also cryptocurrency has not been included in the definition of capital asset and hence it cannot be considered as a capital asset for capital gain tax purposes.
- Receipt of cryptocurrency as a gift: Crypto received by way of gifts is taxable if above the permitted exemption limit. Rules for gifts from relatives, on occasion, or on inheritance shall also be applicable in cases of crypto.
To Sum Up:
The ambit of Indian tax rules does not provide specific guidelines or regulations for the taxability of cryptocurrency, while the act only covers a limited perspective of the currency gains or profits received from any normal investment like equity or any debt instrument, or some business profit. There can be other several situations also where the taxability of cryptocurrency will be challenged under the tax rules.
Hence soon government might bring some definite tax policy for taxing cryptocurrency, at present income from these currencies is clubbed to other income sources or business income of the taxpayer.
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