A number of Indians, who are trading in Bitcoin, are reportedly rushing to sell their holdings amidst anticipation on returns from the cryptocurrency-trading being taxed.
Experts hold that bitcoin returns could attract as much as 20-30 percent tax, the Economic Times reported. However, the taxation would depend upon the categorization of such returns—if they would fall under business income or capital gains.
The selling trend was preceded by a third warning from the Reserve Bank of India (RBI). The RBI last week cautioned investors for the third time saying the central bank had not authorised anyone to trade in bitcoins and thus, such investors were at their own risks.
Saurabh Agarwal, Cofounder of Indian bitcoin exchange Zebpay, told ET: "For the past two to three days we have seen many Indians selling their bitcoins as most of them had bought these at Rs 50,000 to Rs 5 lakh levels and Rs 10 lakh is a psychological benchmark that many would have had”. He said the same reason was responsible for premiums going down.
"In case anyone sells bitcoins, the gains would definitely attract taxation, depending on his intent to categorise the gains either as business income or capital gains," Jeenendra Bhandari, Partner at Tax Advisory firm MGB, told ET. According to him, no specific amendment to income tax law is needed to decide on bitcoin taxability.
Bitcoin returns attracting capital gains tax was a possibility although it would constitute a new asset class, said Amit Maheshwari, Partner at Ashok Maheshwary & Associates LLP Chartered Accountants. Maheshwari told ET, "If anyone is selling bitcoins and the money comes into his bank account, this would attract either long-term capital gains tax or short-term capital gains tax, depending on the holding period.”
In that case, long-term capital gains tax of 20 percent would be levied if an investor held bitcoins for at least 36 months; anything less than that would attract short-term capital gains tax at 30 percent, as per Maheshwari.
However, cryptocurrencies are not yet regulated and recognised in India. Hence, filing profits and losses from trading in them could become complicated in income tax returns.
As the advance tax deadline is hanging upon taxpayers on December 15, bitcoin investors and their tax consultants are trying to figure out a way to deal with the returns on Bitcoin investment along with other cryptocurrencies.More clarity is expected once the Finance Ministry finalises its opinion on a report on virtual currencies that was submitted to it recently. Meanwhile bitcoin prices rose above the USD 16,000 mark on Monday (05.27 UTC).