Not only does India have the world’s greatest number of cryptocurrency owners (10.03 crore), but Indian crypto investments have surpassed $10 billion, up from $923 million in April 2020. Despite the fact that the future of this uncontrolled digital asset in the country is uncertain.
While cryptocurrency is not recognised as legal cash in India, this does not mean that cryptocurrency transactions are prohibited. So, if you’ve invested in any type of digital money and are reaping the benefits, make sure you mention it on your income tax returns.
What is the process of acquiring or creating cryptocurrency?
This is accomplished in a variety of ways:
When a single miner uses computational technology to solve complex algorithms/codes/equations and store data on the blockchain, this is referred to as mining. Payment in new crypto tokens may be received in exchange for this work.
Purchasing: Purchasing it in real currency through a currency exchange and keeping it in a digital currency wallet.
The Reserve Bank of India prohibited banks and other financial institutions from assisting cryptocurrency transactions in 2018. However, in 2020, the Supreme Court overturned the ban, allowing traders to trade virtual currencies such as bitcoin. Despite the fact that virtual currencies are not legal cash, the government has already made it essential for enterprises dealing with them to disclose profit or loss on transactions. These businesses must also reveal the amount of cryptocurrency they have on their books. The government has introduced the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, in parliament, which will be debated during the Winter Session. Income tax returns for crypto holdings in India, as well as global crypto trades by Indian individuals, will be required under the bill. The Enforcement Directorate (ED) issued a notice to crypto exchange WazirX earlier this year for alleged violations of the Foreign Exchange Management Act (FEMA) for making withdrawals from crypto wallets.
Although the Income-tax Act of 1961 (the Act) currently contains no particular tax rules for cryptos, experts have theorised on several ways in which cryptocurrency transactions could be taxed.
How would you categorise cryptocurrency?
If a digital token is purchased for investment purposes, it is considered a capital asset. This means it will be subject to capital gains taxation, which is divided into long-term and short-term capital gains based on the holding period. As a result, if you have purchased cryptocurrencies such as one will have to pay income tax on Dogecoin, Binance, Bitcoin, and other cryptocurrencies. You have two alternatives when filing income tax on profits from bitcoin investments: either prove that your cryptocurrency income is a business or asset class income, or choose the ‘income from other sources’ category.