With the rise of bitcoins in India, many business and income opportunities have been opened up for an enormous number of people. Many people are generating wealth by trading in popular and high-yield coins. Meanwhile, some people are accepting bitcoins as their payment mode in restaurants and online shops. Also, many Indian peoples have gained bitcoins through mining. But many people are confused about how the government will impose a tax on the income generated with bitcoins or how they should declare their income. Indian authorities have firstly banned and then allowed the use of bitcoins has created this confusion.
As of 2018, the Indian government has banned bitcoins and other cryptos. While, in 2020, the government has again ordered to start using bitcoins and other cryptocurrencies like Dogecoin, ethereum, etc. RBI said that it will keep bitcoins in use and proceed with its transactions with caution and precaution. Despite all these conversations, a Bitcoin holder needs to pay taxes earned from their bitcoin income. But still, confusion is there whether to declare this as capital gains or not. The government is planning to categorize digital currency and its tax based on its use, investment, payment, and utility.
The Indian government has made it mandatory to disclose the profits and losses incurred with bitcoins income. Also, the businesses need to show the amount of bitcoin they are holding in their balance sheets. Bitcoins are attracting the tax authorities for their high prices that can be seen from the trading on exchanges in India and worldwide.
Scenarios of income tax on bitcoins in India
- If anyone is holding the Bitcoin for less than three years, the central board of the direct taxes requires you to pay the tax after merging the profits made by bitcoin holding with the ordinary taxable income. The taxable income and the profits made by short-term bitcoin holding will be added up. The total sum amount will be taxed when filing the IT return.
- If the bitcoin asset is held for more than three years, then the profits that occurred are long-term gains. 20% is the long-term capital gain tax in India which comes with indexation benefits.
What is the scene when a Bitcoin holder doesn’t pay the Bitcoin taxes?
If a bitcoin holder is not paying the taxes levied on their income from bitcoins. Then the Indian government has the right to crack down if the holder is making continuous profits with the bitcoin instrument and is not reporting for such gains. The government is serious about managing cryptos like bitcoins. Back in 2018, it made it illegal for its illegitimate activities. But now, it’s fully legal and one can easily transact with it and more guidelines for it will come soon. The guidelines include strictly paying taxes on the capital earned from the bitcoin investment or holding.
So, it can be concluded that bitcoins investment comes with high profits and high risk altogether. Hence, investors should think twice before investing in digital currency. As you invest in bitcoins, you should consider the investment objective, experience level, and risk.