How income tax rule applies on your cryptocurrency gains — Explained


The Reserve Bank of India (RBI) has not yet granted legal tender status to bitcoin and other cryptocurrencies. But, fast emerging cryptocurrency trading platforms in India are enough to indicate the rising number of Indians investing in the virtual tender. When there is investment, there must be income tax liability, but due to the lack of clear income tax rules in regard to bitcoins and other cryptocurrencies, it’s not advisable to avoid paying income tax on one’s cryptocurrency investment gains.

According to tax and investment experts, all income except the explicitly exempted income is liable to income tax. This means that investors will be liable to pay taxes on cryptocurrency investments as well. They advised cryptocurrency investors to pay income tax on cryptocurrency profit by understanding the nature of the investment.

Speaking on the income tax rule applicable on cryptocurrency profit Amit Gupta, Co-founder and MD at SAG Infotech said, “As per regular income tax parlance, the taxation on cryptocurrencies should depend on the nature of investment, whether it is held in the form of currency or in the form of assets. Profits from the sale of cryptocurrency can be taxed as business income if traded frequently, or as capital gains if held for investment purposes. However, it needs to be noted that, if considered as business income, then the profit can be taxed as per the applicable income tax slab rates, but if it is held for investment purpose, then taxation can be the same as tax gain in the form of capital gains.”


Elaborating upon the capital gain tax levied on cryptocurrency profit, the Managing Director of the SEBI registered income tax solution firm went on to add, “If taxpayers utilized their investments in between 3 years, then short-term capital gains according to the relevant income tax slabs will be applicable. However, if the redemption happens post-3 years of investment, then it can be treated as long-term capital gain and can be taxed at 20 per cent with indexation benefit.”

Highlighting the legal angle involved in cryptocurrency transactions Pankaj Mathpal, Founder & MD at Optima Money Managers said, “Cryptocurrency is not a legal tender in India but it doesn’t mean cryptocurrency transaction is illegal. So, while filing income tax on profit from cryptocurrency investments, one has two options — either prove that your income from cryptocurrency is a business or an asset class income or just choose the safest mode of income from other sources. My advice to the cryptocurrency investors is to go by the safest mode and file cryptocurrency income under income from other sources.”


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