Have Bitcoins Gains? Here's How to Pay Your Taxes in India

When it comes to bitcoins and cryptocurrencies, 2017 was the year which changed the world of cryptocurrencies. With prices touching close to $20,000 (Rs 13,40,000) for a bitcoin, all of a sudden cryptocurrencies was all the rage and every kind of investor was looking to get a piece of the pie. However, since late last year, the prices for bitcoin have fallen and the current price is around $6,000. Despite this setback, some of the bitcoin owners did manage to get some really good returns. Here’s a look at how to calculate tax on bitcoins and then process involved in filing it -

Is it an investment or for trading purposes?

According to Mumbai-based chartered accountant Gautam Nayak, tax on bitcoin will differ based on holdings. Nayak while speaking to Livemint said “The first step is to see whether you were trading in it or holding it as an investment. If it is an investment, then you will have to pay capital gains tax. If you are trading in bitcoins, it is a business income. So if your turnover exceeds Rs 2 crores, you are liable for tax audit." Also, the income tax department has not yet specified the classification for trading and investments for bitcoins.

Nayak also said, “You have to consider multiple factors such as duration, the frequency of the transaction, time spent on it and the intention of the transaction. All this will determine whether it is an investment or business income."

Investors would have to pay capital gains tax. Deputy general manager at Taxmann.com, Naveen Wadhwa, while speaking to Livemint said, “Capital gains can be either short-term or long-term. There is no provision for bitcoins and other cryptocurrencies in the Income Tax Act. In the absence of any provision, we assume the general provision will apply. Hence, if you hold bitcoins for less than 36 months, short-term capital gains will be applicable. If you hold bitcoins for more than 36 months, long-term capital gains tax (LTCG) will be applicable."

Also, investors would also have to be aware of the short-term capital gains as it will be clubbed with the salary income and taxed at slab rate. In the case of LTCG tax, an investor will have to pay 20% tax, with the benefit of indexation.

Filing your tax returns correctly

First off, If one has gains from selling bitcoins, they will have to make sure they choose the right income tax returns (ITR) form. Wadhwa says, “ITR1 is not for you. Depending on whether it is considered capital gains or business income, you will have to opt for ITR2 or ITR3." He also added, “Individuals may find it difficult to calculate capital gains. Hence, you may need help from tax experts."

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