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This article is focussed on Arbitrage Opportunities in Cryptocurrency - Guide For Beginners. Arbitrage Opportunities in Cryptocurrency is about leveraging prices to your advantage. Crypto trading has been around for quite a few years now; however, the prices of cryptocurrencies vary from one exchange to another.

Due to the recent growth in Cryptocurrency trading activity in the country, India’s tax department has reportedly decided to “chase” the data it has acquired about individuals trading Cryptocurrency way before the Reserve Bank of India banned it in 2018. Whether or not this information…

With cryptocurrency prices soaring over the last few years, many Indians have raked in instant wealth. But paying taxes on this income has turned into a nightmare.

This is so because under Indian tax laws, the nature of virtual currency investments is unclear. What is certain is there’s NO ESCAPING TAXES.

In December 2017, the income tax (I-T) department surveyed several cryptocurrency exchanges in the country to understand their modus operandi and user base. Since then, notices have reportedly been served to about 500,000 investors for non-payment of taxes. In the past few months, the bourses, too, have appeared on the Reserve Bank of India’ and the government’s radar.

So without further delay, below are some FAQs on Cryptocurreny and it's Taxation.

1 - Question on Classification of cryptocurrencies trading

Whether cryptocurrencies can be classified as either capital gains or business income?

Answer:

In view of Section 2(14) of the Income-tax Act 1961, a capital asset means a property of any kind held by a person, whether or not connected with his business or profession. The term 'property', though has no statutory meaning, yet it signifies every possible interest which a person can acquire, hold or enjoy.

Therefore, bitcoin could be deemed as capital assets if they are purchased for the purpose of investments by taxpayers. Any gain arising on transfer of a cryptocurrencies shall be taxable as capital gains. However, if the transactions are substantial and frequent, it could be held that the taxpayer is trading in cryptocurrencies. In this case, the income from sale of cryptocurrencies would be taxable as business income,

However, as far as India is concerned, you would not find any business dealing in cryptocurrencies. You will find brokers and investors, who deal regularly in stocks and commodities, but when it comes to cryptocurrencies, you would never find any broker who is holding a virtual currency as a stock in trade Wadhwa added.

Therefore, the gains made from investing in bitcoins or virtual currencies are taxable as capital gains, and to calculate capital gains, one needs to first calculate the period of holding. If investors hold cryptocurrencies for 36 months or more, the gains would be taxable as long-term capital gains (LTCG), and less than 36 months, it would be short-term capital gains (STCG).

Short-term capital gains are taxable as per the slab rates applicable to a taxpayer. And long-term capital gains are taxed at the flat rate of 20% with the benefit of indexation.

When it comes to filing ITR, individuals having taxable income more than ₹50 lakh have to mandatorily fill in Schedule AL in ITR forms, which contains information related to investments in mutual funds and securities, including cryptocurrencies.

Moreover, if a company or a partnership firm has made an investment out of their business funds into a cryptocurrency, then it is mandatory for them to show it in their balance sheet as they have to follow the accounting standards.

2 - Question from Client on Crypto arbitrage using debit card

Hi Sir, I am purchasing bitcoin in foreign exchange through debit card and selling them in indian exchange and repeating the cycle . is there any legal complications in doing so. Kindly let me know.

Answer:

There is no illegality as of now for trading in cryptocurrency in India. However, arbitrage arises when you are buying/selling cryptocurrency abroad and selling/buying them in India to get the benefit of changes in the rates. It implies that there may be usage of foreign exchange.

Since you will be selling in India and you are a resident of India, the profits that you earn in India will be taxable in India. You will pay taxes only on your share of profits. Further, currently there is no clarity on GST on bitcoin transactions. 

Banking compliances would be there for foreign payments, such as Form 15CA.

3 - Question from Client - Is it legal to buy cryptocurrency in USA and sell in India?

Hello,
As there are some arbitrage in cryptocurrency exchanges in USA and INDIA , is it legal to send USD to friend in USA and let her  buy bitcoin over there and tell her to send those bitcoin to your wallet and later on sell these bitcoins in India?
Scenario is ,
Lets say I transfer 100$ to her US bank account. She buys bitcoin in US crypto exchange and transfer those bitcoins to my wallet. I encash those bitcoins and lets say I get  INR equivalent to 105 $ . Then
1. Do I have to pay tax on 105$ or the 5$ earned?
2. And how I can link my  100$ transfer to my friend and 105$ gained by selling bitcoin?
3. If above scenario is possible then what are the documents I will need to support it ?

Answer:

1) You will pay tax on $5 and not on the entire $105. There are no clearly defined laws in India regulating the sale and purchase of bitcoins. So there is nothing legal neither illegal in trading in cryptocurrency / bitcoins as of now.

2) You will have get the transaction details from the exchange and have to calculate capital gains basis that.

3) As mentioned in Point 2. You need to have the transaction details from the exchange and have to calculate capital gains basis that.

4 - Question on Accounting Method and Cryptocurrencies tax treatment

1) Should I consider LIFO or FIFO for tax calculations for cryptocurrencies capital gains?
2) cryptocurrencies or shares sold but the Fiat was not transferred to bank account and was still in Demat account / crypto exchange, and within next few days more cryptocurrencies / shares were purchased using that very same Fiat(capital+profit) within same financial year, will the capital gain tax be paid on it or it is to be paid when the Fiat is transferred to bank account in future?

Answer:

1. It should be FIFO method.

2. Capital gain is applicable on sale of cryptocurrencies. It is nothing to do with bank account transfer.

5 - Question on setoff of capital losses against capital gains

1. Is it possible to adjust short term capital gains with short term capital losses occurred in the same Financial year, if yes   is there a provision to carry forward the adjustment.
2. If another cryptocurrency/asset is purchased against some other cryptocurrency/asset will that also be considered as sale of the previous asset?

Answer:

If the exchange of cryptocurrencies/assets takes place outside India, will it come under Indian tax law?

Answer:

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is Mumbai's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA

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Below are few FAQ about Cryptocurrency Taxation. This post is based on CA or Chartered Accountants perspective on Cryptocurrency Taxation. For any other questions, please schedule an appointment. 

FREQUENTLY ASKED QUESTIONS

1) Is it legal to hold, trade or invest in cryptocurrencies in India?

There is no explicit ban on holding/trading/investing/dealing in cryptocurrencies.

The only prohibition in place is on banks, regulated by the RBI, from providing banking access/services to any individual or entity dealing in virtual currencies.

2) Do I have to pay tax on income or profits earned from cryptocurrencies?

Absolutely. It is essential to declare such income in the Income Tax returns and pay tax accordingly.

While investing or trading in cryptocurrencies is not illegal, any income earned thereof on which tax is not paid would be deemed as illegitimate wealth.

3) What is the rate of tax applicable to income from cryptocurrencies?

Depends upon the nature of activity undertaken with cryptocurrencies. The rate of tax would differ for investors vis-à-vis traders, miners or blockchain businesses.

4) What if I don’t pay tax?

The Indian Income Tax Department can obtain information on persons/entities holding cryptocurrencies from various sources.

In case a person/entity is found to have evaded taxes, severe penal provisions under the Income Tax Act would become enforceable.

5) Do I need to report cryptocurrencies held/traded outside India?

Yes.

In case you are an Indian Resident, all assets held outside India are required to be disclosed in the Income Tax return. Further, any income earned from such assets shall be chargeable to Income Tax in India. Failure to do so can invite severe penalties under the Black Money and Imposition of Tax Act, 2015.

6) How do I monitor all my transactions and track profits/gains?

We at CA Mitesh and Associates will help you maintain a consolidated and up-to-date record of all transactions and incomes earned from any Blockchain or cryptocurrency exchange.

7) How do I compute and report my Income Tax liability?

We at CA Mitesh and Associates will help you to comprehensively ascertains any and all tax liabilities, followed by assistance in completing and filing Income Tax Returns.

8) Can I receive an Income Tax notice?

Yes.

A notice may be served under several circumstances including non-reporting of income, shortfall in payment of tax or non-disclosure of foreign assets/holdings.

9) What happens when I receive an Income Tax notice?

The tax assessment notice shall need to be responded to via personal representation or a written submission.

We at CA Mitesh and Associates will handle end-to-end assessment procedures. All responsibilities of corresponding with the Income Tax Department are handled, ensuring least possible inconvenience to our clients.

10) How is crypto tax calculated?

You can be liable for both capital gains and income tax depending on the type of cryptocurrency transaction, and your invididual circumstances. For example, you might need to pay capital gains on profits from buying and selling cryptocurrency, or pay income tax on interest earned when holding crypto.

11) I lost money trading cryptocurrency. Do I still pay tax?

The way cryptocurrencies are taxed in most countries mean that investors might still need to pay tax, regardless of if they made an overall profit or loss. Depending on your circumstances, taxes are usually realised at the time of the transaction, and not on the overall position at the end of the financial year.

12) Which of your crypto activities are taxable?

Taxability doesn’t mean you will pay tax on every crypto engagement under the sun. These are the cryptocurrency trading and investment activities that require you to pay tax. These activities cut across almost all countries. 

- When you sell your cryptocurrency for fiat (USD, GBP, INR, AUD, JPY, EUR…)
- Exchanging your cryptocurrency for another cryptocurrency
- Using your crypto assets to pay for goods or services
- When you receive cryptocurrency as earnings (either through mining or as payment for services offered to a third party)

13) Which of your crypto activities are Non-taxable?

Not all cryptocurrency engagements attract taxes. Here are the activities you don't need to pay taxes on: 

- When you move your cryptocurrency from one wallet to another or between crypto exchanges. 
- Donating cryptocurrency to a non-taxable charity organization
- When you buy crypto with fiat 
- When you give cryptocurrency as a gift to a friend or family. 

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is Mumbai's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA

Profited from Bitcoins or other Cryptocurrencies and not sure how to file your income tax returns? Did you know gains from bitcoin can be treated as capital gains or Forex trading gains and hence taxed? We are India’s leading tax filing portal to help you to file your returns to calculate your tax and finish filing income tax returns within 2 days.

Anyone who earns any income in Bitcoin needs to declare their income and pay taxes. That seems fair enough. But this is also where things start getting confusing for most people.

The fact is that, in the absence of any guidelines from CBDT, ICAI, RBI or the Income Tax Department, cryptocurrency investors from India are largely left to figure this out on our own. As an early adopter to crypto, I was perplexed with the subject of accounting my income in cryptocurrency from blogging and consulting. During my research into this subject, I’ve interviewed professional tax consultants and an income tax official.

The fact is that the IT Act does not stop you from earning or profiteering from investments in cryptocurrencies and allows you to declare your gains and pay taxes on it. Therefore, as per a professional tax consultant, the four most common and safe ways of filing your returns after declaring your income from cryptocurrencies are as follows:

Capital Gains

If you are a casual investor in Bitcoins, any profit resulting from the sale of your cryptocurrency is taxed as short-term capital gains as per your income tax slab rate. If your income exceeds Rs 10 lakh then there will be a 30 percent tax on the profits plus surcharge and cess.

Professional tax consultants seem to be favoring these parameters to consider Bitcoin as a store of value similar to a stock in a company as opposed to a mode of payment in order to make it easier to file returns for their respective clients.

In case of any long-term capital gains, the tax rate applicable is only 20 percent on your profits. The time period of the asset needs to be considered here while making an assessment and most auditors seem to be preferring to equate the time period of equity (minimum holding period of 2 years) to Bitcoins. You can also account for indexation to reduce your tax burden.

Business Income

If you are a Bitcoin trader with substantial and frequent transactions it could be considered as a business (trading) income. Here you can account for your profit and loss accordingly. CBDT in the past has issued a circular to distinguish when equity is held short-term as an investment versus a stock-in-trade.

Here, an applicable rate of income tax as per your income slab will apply. If your income exceeds 10 lakh rupees then the applicable tax rate is 30 percent plus surcharge and cess.

Professional Income

If you are a blogger, freelancer, or consultant earning in Bitcoins, you may be wondering how to file your taxes for income from any services rendered to clients in India or abroad.

For example. one of my client is a consultant paid in Bitcoin and also a professional blogger on Steemit.com. On Steemit, he earns in the cryptocurrency, ‘Steem’, which he then sells to purchase Bitcoin. Then, he uses an Indian Bitcoin exchange such as CoinSecure.in or Zebpay to sell Bitcoin for Indian rupees and cash out his earnings. This is fully transparent as all Indian exchanges adhere to KYC norms.

Here, an applicable rate of income tax as per his income slab will apply. If his income exceeds Rs 10 lakh then the applicable tax rate would be 30 percent plus surcharge and cess.

Income from Other Sources

What if you are mining Bitcoins? If you fall under this category of Bitcoin users then you are likely to be only selling and never purchasing any Bitcoins. This is somewhat similar to rendering services as a consultant and earning in Bitcoin with the only difference being that you are not a professional.

You will be taxed as per the Income-tax slabs and if your income exceeds 10 lakhs, then the applicable tax rate is 30 percent plus surcharge and cess.

It is wise to declare your income from Bitcoins in your annual tax returns and hire an excellent professional tax consultant to do your accounting if you plan on mining, earning, or investing regularly in Bitcoins.

WORLDWIDE CRYPTO LICENSING

Our lawful service includes helping the world’s leading blockchain and cryptocurrency ventures to enhance and retain adherence with securities law, representing investors and consumers in high personal and class action lawsuits, resolving disputes between clients and virtual currencies, helping peer-to-peer traders and exchanges comply with the Bank Secrecy Act and the State Money Transmitter Act.

LOOKING TO HELP YOU RESOLVE LEGAL CRYPTOCURRENCY CHALLENGES

There are a number of complicated difficulties with cryptocurrency. If you are a company owner or an investment firm who wants to invest in IEO, IDO, ICO, DeFi Project & STO or use digital currency as a medium of exchange, you must be aware of the various securities and commodities, money transfer, financial fraud, corporate and tax laws throughout every country.

We help our client base navigate and excelle in the blockchain industry. With a thorough knowledge of the market framework, we can share useful insights for entrepreneurs on the crucial integration of these innovations into their current and potential products and services. Offer, safeguard their corporate investment and schedule, and call for the changes needed to current blockchain legislation and regulations.

Our legal counsel is also well established for securing, managing, and implementing intellectual property privileges is one of the regions where blockchain really can stand out, endorsed by a well-extended adoption structure.

• Reserve Bank of India has requested its own controlled entities (such as banks) to avoid offering services to individuals or business entities engaged in cash cryptocurrencies (INRs) up and down routes. This restricts the purchase/selling of INR cryptocurrencies via banks. Despite all the weaknesses, India represents one of the largest nations in the world, taking into account the share of currency kept (though not actually traded), which is 44% of the world’s share. Given the uncertainty surrounding Bitcoin and the fairly developing state of its growth, one thing is for sure-Bitcoin will take time to be widely accepted as a currency or a medium of payment in India.
• This will contribute to the usual reaction of this ex-change shifting base outside India, and the subsequent loss of big potential tax revenues. The handling of bitcoins would be perfect if the government were to legalize the trade of these currencies. Currencies should be viewed as current assets, and GST should be paid at the margins that bitcoin exchanges charge their users. This would ensure that currency trade is limited, as well as the addition of tax Income to the government of India.
• In the Budget Speech of Finance Minister, Mr. Arun Jaitley, said in his 2018 budget, He said that “Blockchain technology or Distributed ledger system enables the Firms of any chain of records or transactions without the need for intermediaries. The Govt of India does not consider cryptocurrencies to be a coin or legal tender and will take all steps to eliminate the usage of such crypto assets in the funding of illegal activities or as part of the payment system.
• The Centre Govt will possibly explore the use of blockchain technology to usher in the digital economy.” Further, the RBI has also chosen to reiterate its earlier message to ‘users, holders and traders of Virtual Currency (‘VCs’)/ CryptoCurrencies like bitcoins regarding financial, operational, legal, potentially global, consumer protection and security risks associated with dealing with such risks.
• Although this article is aimed at addressing the taxability of Bitcoins only, the tax treatment of transactions with other cryptocurrencies will also be similar to that of cryptocurrencies /Bitcoins.

Global Bitcoin Situation

The bitcoin industry differs significantly from country to country.

• The United States of America considers Bitcoin to be a commodity that can be a fixed asset or an inventory asset.
• On the other hand, the UK considers it to be a ‘private currency.’
• Australia has a case-by-case approach to Bitcoins, spanning from traded products to investment, with different care for related mining or exchange facilitation services.
• Singapore considered Bitcoin to be a legal normal currency in its country,

• Japan considered Bitcoin to be commodities.

What are the different situations/ Scenario of CryptoCurrencies taxed in India?

The theory of CryptoCurrencies being really new to the Indian economy, obviously, the government has not yet introduced the taxability of bitcoins into the books of the law. At the present time, the tax levy on bitcoins cannot be excluded out since the Indian income tax regime has always tried to tax income earned regardless of the form in how it is received.

The prospect of a tax on bitcoins can therefore be recognized in the following four situations:

Situation 1: Income from Bitcoin Mining

• Bitcoins created by mining are self-generated capital assets. Later selling of such bitcoins will, in the normal course of business, give rise to capital gains. Even then, one should note that the acquisition cost of a bitcoin can not be calculated since it is a self-generated asset. Moreover, it does not fall within the meaning of the provisions of Section 55 of the Income Tax Act, 1961, which specifically addresses the cost of acquiring such self-generated assets.
• The capital gains computation process is still not in operation following the judgment of the Supreme Court in the case of CIT v. B.C. Srinivasa Shetty (1981). The Hon’ble Supreme Court as well as various High Courts of the country had held that taxation on capital gain was not chargeable where the cost of acquisition was not ascertainable or nil. i.e No Gain in case of Nil cost of acquisition. Such issues were covered by various No of decisions Court of the country. Thus, No Capital Gain Tax will be levied on the mining of bitcoins.
• This status will be preserved until such time as the government has decided to amend Section 55 of the Act. At this point in time, given that the Indian tax systems are completely silent on the taxability of bitcoins, we thought it right to elaborate on the possibly opposite view of the income tax authorities. There is a chance that bitcoins will not be considered by the government to be capital assets at all. Consequently, the provisions on capital gains will not occur at all. Consequently, the income tax authorities can choose whether to tax the value of bitcoins obtained from mining under the head “Income from other sources”

Situation 2: Bitcoins kept as a transfer of investment in exchange for real currency 

• If bitcoins, which are capital assets, were retained as an investment and traded in exchange for actual cash, value appreciation will result in a long-term capital gain or short-term capital gain based on the holding duration of the bitcoin. In addition, long-term gains will be taxed at a flat rate of 20%, while short-term gains will be taxed at the individual slab rate. The purchase cost for the acquisition of long-term capital gains will be calculated after the indexation benefit has been awarded.
• Understanding and appreciating the likely opposite point of view of the income tax authorities referred to in paragraph 1 above, the IT authorities do not consider Bitcoins as a capital asset and thus the capital gains provisions will not apply. The income tax authorities may therefore prefer to tax the earnings from bitcoins under the heading “Income from other sources.”
• In addition, if the income is taxable under “Income from other sources,” the taxpayer will have to pay taxes at the rate applied to the tax leg from which the income is taxed. For example, if his taxable income exceeds Rs 10 lakh, he will be liable to a tax of at least 30 percent against a flat tax rate of 20 percent, which he would be responsible for paying if taxed on long-term capital gains. The advantage of indexation, as would be available if taxed on capital gains, would also not be accessible if taxed on income from other sources.

Situation 3: Bitcoins kept as a stock-in-trade transfer in exchange for real currency

• Income from Bitcoins trading would give rise to business income and, as a consequence, income from such business would be subject to income tax as per personal slab rates.

Situation 4: Bitcoins gained as consideration for the selling of Goods & Services

• Bitcoins obtained in this way shall be treated at the same time as receiving the money. It will represent income in the hands of the beneficiary. Moreover, since the recipient gained this income from a business or a profession, it will generally be taxed under the heading of gains or profits from a business or a profession.
• As far as the disclosure requirement for Bitcoins in the income tax return forms is concerned, there is still a lack of clarity.

DIGITAL CURRENCY AND BLOCKCHAIN & LEGAL CONSULTATION SERVICES

We have global digital currency lawyers who can encourage companies, investors, and institutions to navigate the lawful complexities of digital currency and blockchain. We are committed to representing our clients tactically and aggressively in their transaction-based and lawsuits matters, whether ICO, IEO, Defi Project, organizers, Crypto Exchange, STO cryptocurrency suppliers, or investment firms associated in cryptocurrency projects, in order to address the complex legal issues presented by Blockchain technologies and online currencies.

7 Crypto Tax Questions For Your CA Chartered Accountant

It doesn't matter whether you're a die-hard crypto trader or whether you occasionally dabble in crypto investing. If you've traded cryptocurrencies during the year, tax filing can get tricky. In case you've been under the impression that crypto transactions are anonymous and you don't really need to worry about paying taxes on them, you are wrong.

The India Income Tax Department had asked top crypto exchanges like WazirX, Coindcx, others for information on their India-based customers. What's more, they actually used this information to send out letters to suspected tax evaders. 

This is all to say that the India Income Tax Department is taking crypto taxation very seriously. So if you've been less than 100% when it comes to filing your crypto tax returns, this is the time to make up for it. If you're feeling overwhelmed and are not sure where to start, sit with your CA / Chartered Accountant and check whether they're up for the task of handling your crypto taxation. You can ask them these 7 questions to make sure they're up-to-date with the latest in crypto taxes and can help you sort out your crypto tax woes in time.

1. What kind of tax am I expected to pay on my cryptocurrency?

The India Income Tax Department treats cryptocurrency as property which means crypto transactions are treated in the same way as property transactions. To put it simply, if you sell crypto within one year of buying it, you will be subject to Short-term Capital Gains Tax (SCGT). If you wait for over a year, you will have to pay Long-term Capital Gains Tax (LCGT).

2. I have some transactions where I didn't sell my crypto for regular currency. I sold some Ethereum and bought bitcoin instead. Do I need to pay taxes for such a transaction?

This is a doubt that a lot of people have. If you didn't technically "sell" the cryptocurrency, do you still need to pay capital gains tax? However, the India Income Tax Department is quite clear about this. "Disposal" of any capital asset constitutes a taxable event. Disposal can mean a number of different things — from selling crypto to exchanging crypto for other cryptos, using crypto to purchase other goods, or even gifting crypto.

So how do you calculate your capital gains in this case? When it comes to crypto-to-crypto exchange, you need to keep accurate records of all your transactions. If you haven't done so yet, you can use crypto tax software to get your records in order. In this case, the fair market value of the crypto that you exchanged as on the date of the transaction will be the sales proceeds. You can then deduct the cost of purchase from the sales proceeds to calculate your capital gain.

3. Some part of my salary is paid to me in bitcoin. How do I report this income given that the price of crypto keeps fluctuating?

The salary you receive in crypto has to be added to your taxable income when it comes to calculating your taxes. The India Income Tax Department follows a fairly straightforward rule here — the fair market value of the bitcoin on the date that you received it is what will be added to your gross income. In this case, it's important for you to maintain accurate records as to when the cryptocurrency was credited to your account.

4. I am mining cryptocurrency. Do I have to pay self-employment tax? What expenses can I deduct when I report my taxable income?

The answer to this depends on the nature of mining. For instance, you might be mining bitcoin but as an employee working for someone else. And the bitcoins mined are not in your name. In this case, you would be treated as an employee and would not be subject to self-employment tax.

You might also be mining cryptocurrency but as a hobby, rather than a full-time business. In this case, it is not a self-employment activity and you wouldn't have to pay self-employment tax. At the same time, you wouldn't be able to deduct any mining-related expenses either.

If you're mining cryptocurrency in your own name and as a business, you would be considered self-employed and expected to pay self-employment tax. You would also be able to deduct certain expenses (hardware and software costs, electricity and utility bills, etc) from your profits in order to determine your net taxable income.

5. What about the tax treatment for cryptocurrency that you receive in a hard fork. Do I need to disclose this in my tax return?

Most experts believe that the fair market value of the coins received on the date of the fork is ordinary income and is taxable. Plus, this fair market value also becomes your cost basis when you end up selling the forked cryptocurrency.

6. What if I haven't maintained accurate records of my crypto transactions? What can I do to remedy the situation now?

For starters, you can use our services to help you organize your transactions and maintain accurate records. If there are still some discrepancies (for instance the exchange you used is no longer operational), utilize an estimate and explain why you have used such an estimate in your tax returns. This will safeguard you from a hefty penalty in case the Income Tax Department decides to pursue the discrepancy.

7. I have not been reporting my crypto investment in my tax returns for several years. What can I do about it now?

Since the India Income Tax Department is cracking down on crypto tax evasion, you need to act quickly. Schedule an appointment with us and we shall help you navigate this treacherous path. 

Bottomline

These are some of the most common questions that crypto investors are currently plagued with and your CA / Chartered Accountant should have strong, confident answers for these. If you're an active crypto trader and you feel like your CA / Chartered Accountant isn't as well-versed in crypto tax matters as they need to be, hiring a crypto tax accountant like us might be a good idea.

 DISCLAIMER

The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is Mumbai's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA

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Below are some of the most Common types of Crypto scams in India - 2024 Many people in India are falling for Cryptocurrency scams with Get Rich Quickly by investing in Cryptocurrency. Some Apps & Website offer to invest in Bitcoin and other Cryptocurrency on…

This article - Residential Status – FEMA 2021 would be pertinent for NRIs and would help them in understanding their Residential Status under FEMA 2021. This article is written in FAQ style to address most common questions & issues.

How to determine residential status of a person under FEMA?

ANSWER: "Person resident in India" means—

(i)  a person residing in India for more than one hundred and eighty-two days during the course of the preceding FY but does not include—

A.  a person who has gone out of India or who stays outside India, in either case—
•  for or on taking up employment outside India, or
•  for carrying on outside India a business or vocation outside India, or
•  for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

B.  a person who has come to or stays in India, in either case, otherwise than—
•  for or on taking up employment in India, or
•  for carrying on in India a business or vocation in India, or
•  for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

Explanation:
a) The residential status of a person leaving India will be determined as under:
If a person leaves India for the purpose of employment, business or for any other purpose that indicates his intention to stay outside India for an uncertain period; then he becomes a person resident outside India from the day he leaves India for such purpose.

b) The residential status of a person returning to India will be determined as under:
If a person comes to India for the purpose of employment, business or for any other purpose that indicates his intention to stay in India for an uncertain period; then he becomes a person resident in India from the day he comes to India for such purpose.

Under FEMA, stay for a period of 182 days is also stated. However, it shall be noted that the residential status of a person in our opinion is primarily determined basis the intention of the person to stay in India.

ii) any person or body corporate registered or incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person resident outside India,

(iv) an office, branch or agency outside India owned or controlled by a person resident in India.

"Person resident outside India" means a person who is not a resident of India.

Residential status as per FEMA under various scenarios for person leaving India on 1st June 2019:

ANSWER:

What is the residential status of students from India going abroad for studies?

ANSWER: It is observed that when students leave India for taking up a course of specified duration, such stay outside India exceeds the period officially intended. While taking up studies, or further advance courses, students may have to take up job or seek scholarship to supplement income to meet their financial requirements abroad. As students have to earn and learn and may even borrow, their stay for educational purposes gets prolonged than what is intended when leaving India.

It is clear that their stay  and intention to stay outside India is for an uncertain period when they go abroad for their studies; they  are treated as  Person resident outside India as per the circular issued by RBI.

Can the residential status of person vary for the same FY as per FEMA and the Act?

ANSWER: Yes. The residential status of a person for a particular FY may vary as per FEMA and Income Tax i.e. a person may be a “resident” person in India as per the Act and a person resident outside India as per FEMA and vice versa. 

Who is a PIO?

ANSWER: Person of Indian Origin (PIO) means a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions:

• Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or
• Who belonged to a territory that became part of India after the 15th day of August, 1947; or
• Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or
• Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c)

Who is an OCI?

ANSWER: The Constitution of India does not allow holding dual citizenship i.e. Indian citizenship and citizenship of a foreign country simultaneously.

However, after repeated demand from persons of Indian origin for allowing dual citizenship, Government in 02.12.2005 started Overseas Citizen of India scheme. However, it is to be noted OCI is not dual citizenship of India. Registration as an OCI provides the registrant few benefits as specified in FAQ. h below.

However, as per Gazette notification No. 26011/01/2014IC.I published on 09.01.2015 all the existing PIO card holders registered as such under new PIO Card scheme 2002, shall be deemed to be Overseas Citizens of India Cardholder (OCI).

Therefore from 09.01.2015, one can only register as OCI cardholder and existing PIO cardholders may be considered as OCI cardholders.

Who are eligible to be OCI holder?

ANSWER: A foreign national is eligible for registration as OCI holder if one falls under any of the below criteria:

•  who was eligible to become a citizen of India on 26.01.1950** or
•  was a citizen of India on or at any time after 26.01.1950 or
•  belonged to a territory that became part of India after 15.08.1947
•  Person of Indian Origin (PIO) card holders are deemed to be OCI

Children and grandchildren including minor children of the above referred persons are also eligible for OCI, provided his/her country of citizenship allows the same in some form or other under local laws, and is eligible for registration as an OCI.

However, if the applicant had ever been a citizen of Pakistan or Bangladesh, he will not be eligible for OCI.

•  Spouse of foreign origin of a citizen of India or spouse of foreign origin of an OCI card holder registered and whose marriage has been registered and subsisted for a continuous period of not less than 2 years immediately preceding the presentation of the application.

Provided that for eligibility for registration as OCI, such spouse shall be subjected to prior security clearance from a competent authority in India.

**Any person who, or whose parents or grand-parents were born in India as defined in the Government of India Act, 1935 (as originally enacted), and who was ordinarily residing in any country outside India was eligible to become citizen of India on 26.01.1950. An OCI card holder is eligible to visit India without obtaining a VISA.

What are benefits of becoming an OCI?

ANSWER: Few major benefits of becoming an OCI are as below:-

•  A multiple entry/ multi- purpose life-long visa for visiting India
•  Exemption from registration with local police for any length of stay in India
•  OCI may be granted Indian citizenship after 5 years from date of registration provided he/she stays in India for 1 year before making application
•  Employment allowed in all areas except mountaineering, missionary and research work and other work requiring PAP/RAP (PAP-protected area permit, RAP- Restricted area permit)

This article - Residential Status – Income Tax Act 2021 would be pertinent for NRIs and would help them in understanding their Residential Status under Income Tax Act 2021. This article is written in FAQ style to address most common questions & issues.

When is an individual considered as a Resident in India under the Act?

ANSWER: An individual is considered as a Resident in India under the Act if :-

1. he stays in India for 182 days or more in a FY; or
2. he is India for 60* days or more in a FY and for 365 days or more in preceding 4 FYs.

*However, the condition of stay of 60 days is extended to 182 days for:

1. Member of the crew of an Indian Ship leaving India
2. Indian citizen leaving for purpose of employment
3. PIO or Citizen of India, being outside India, having come on a visit to India

When is an individual considered as a Non-resident (NR) in India under the Act?

ANSWER: If an individual does not satisfy any of the conditions for being a Resident in India as per prior question, he/she shall be considered as a NR in India.

When is an individual considered as a RNOR in India under the Act?

ANSWER: If an individual is a Resident of India for a particular FY (as explained in the above question)

AND

if the said individual is –

1. a NR in India in 9 FY out of 10 preceding FYs; or
2. is in India for less than 729 days in preceding 7 FYs,

then he/she shall be considered as a RNOR in India provided he satisfy either of the above additional condition.

However, if both the aforesaid additional conditions are not satisfied, then he/she shall be considered as ROR in India.

Whether date of arrival in India and date of departure from India to foreign country must be included while calculating number of days of stay in India?

ANSWER: Generally, while calculating the number of days of stay in India, date of arrival and date of departure in India shall be treated as days of stay in India. Normally, dates stamped on Passport are considered as proof of departure from and arrival in India.

However, in case where an individual is a Citizen of India and a member of the crew of a Indian Ship, on a voyage having originated from any port in India, with destination being any port outside India or vice versa, then number of days of stay in India for the said individual, shall not include the period beginning on the date entered into the Continuous Discharge Certificate (CDC) in respect of joining the ship till date entered into the CDC in respect of signing off from the ship.

An Indian citizen leaves India for the first time on July 1, 2018 for taking up employment abroad. He/she does not return to India till March 31, 2019. What will be his/her residential status for the FY 2018-19?

ANSWER: The individual in the aforesaid case stays in India for 92 days during FY 2018-19.

As per provisions of the Act, in the following cases, only the condition of stay in India for less than 182 days is applicable for determining Residential Status to be NR:

1. In case of a person, who is citizen of India or PIO being outside India, who is on visit to India;
OR
2. In case of a person, who is citizen of India, and leaves India for employment outside India or as a member of the crew of an Indian ship.

Accordingly, as his/her stay in India is 92 days which is less than 182 days, the residential status shall be a NR for the FY 2018-19 under the provisions of the Act.

It may be noted that the same conditions may not be applicable in case of family members of the person leaving India who has left India for the purpose of employment abroad.

Would the ANSWER: in the above example be different in case he/she was not an Indian citizen but a PIO?

ANSWER: As explained above, he/she is not an Indian citizen, so he/she would not be eligible to claim benefit of 182 days, even though he/she is a PIO. Hence, as his/her stay in India in the FY 2018-19 exceeded 60 days and for the 4 years preceding the FY 2018-19 exceeded 365 days, his/her residential status would be Resident of India.

A foreign citizen who is a PIO is settled overseas since 2004. She/he comes on a visit to India in FY 2018-19 on June 1, 2018 and leaves India on February 1, 2019. For the past 13 years, her/his days of stay in India were less than 180 days per year, however her/his total stay for the last 7 years in India was around 1000 days. What will be her/his residential status for FY 2018-19?

ANSWER: The individual in the aforesaid case stays in India for 246 days during FY 2018-19.

So, she/he shall be a Resident for FY 2018-19, as her/his stay in India for FY 2018-19 is more than 182 days. However, she/he shall not be ROR despite her/his stay for the past 7 years is exceeding 729 days, as she/he has been a NR for all the past 10 years by virtue of her/his stay in India being less than 182 days for the past 10 years. Accordingly, her/his residential status for  FY 2018-19 shall be that of a RNOR.

Who is treated as a PIO as per the Act?

ANSWER: A person shall be deemed to be of Indian origin if he/she, or either of his/her parents or any of his/her grand-parents, was born in undivided India (i.e., India, Pakistan and Bangladesh before 1947).

During FY 2018-19, an Indian citizen left India for the purposes of employment overseas on August 1, 2018. He/she came on a visit to India on January 20, 2019 and left for the foreign country on February 1, 2019. What shall be his/her total number of days of stay in India? What would be his RS?

ANSWER: His/her stay in India for FY 2018-19 will be 136 days (April 1, 2018 to August 1, 2018 - 123 days and January 20, 2019 to February 1, 2019 - 13 days). The day of leaving India and returning to India both will be calculated as ‘stay in India’ for the purposes of counting number of days of stay in India. He would be a NR of India for FY 2018-19.

An Indian citizen is leaving India for the first time for taking-up employment overseas. What is the best time for his/her departure from India?

ANSWER: As it is his/her first year of leaving India for the purposes of employment, being an Indian citizen, he/she will become a resident in India only if his/her stay in India for the concerned FY is 182 days or more. Hence, he/she should leave India on or before September 28 to maintain status of NR for that FY. This is on the basis that he/she does not return to India for any visits personal/ official until the end of such FY.

If he/she fails to do so, he / she will qualify as ROR and by virtue of taxation rules will be taxed on global income for residents, subject to DTAA benefits. There will also be an obligation to report foreign assets in India. Thus, he/she may need to plan his/her departure and subsequent visit appropriately keeping in mind the tax provisions.

If an Indian citizen settled overseas wishes to return to India for good, what is the best time for her/him to do so?

ANSWER: On the basis that he/ she was a NR in the previous FYs, she/he should try to come back on or after February 1 (or February 2 in case of a leap year). However, if her/his stay in India in prior 4 previous FYs does not exceed 365 days, then she/he may return after October 2 (or October 3 in case of a leap year). In both the cases, she/he will continue to remain NR for that FY.

A Karta has an HUF comprising of himself, his wife, two sons and an unmarried daughter. The family is based in India, except for the Karta who resides overseas for his employment purposes. He visits India once in four months and takes the financial decision on his stay in India. Will the HUF be categorized as a resident?

ANSWER: An HUF will be categorized as NR only when it is wholly controlled and managed from outside India. Accordingly, because the HUF will be managed wholly in India, as the decisions are taken when Karta comes India, its residential status shall be Resident. Further, the HUF will not be considered ROR-Resident if its Karta has been a Resident for less than 2 FY out of 10 FY preceding that FY, or has not during the 7 FY preceding that FY been in India for more than or equal to 730 days. Accordingly, if the Karta is not ROR-Resident, the HUF shall not be ROR-Resident.

An Indian citizen stays in India for less than 182 days in FY 2018-19 and leaves India for the first time for the purpose of self-employment / business outside India. What will be his/her residential status for the FY 2018-19?

ANSWER: The expression ‘employment’ may also include business and self-employment.

So, in case of a person, who is citizen of India, and leaves India for self-employment or business outside India, then only the condition of stay in India for less than 182 days may be applicable for Residential Status to be NR.

Accordingly, he/she shall be a NR for the FY 2018-19 under the provisions of the Act, as his/her stay in India is less than 182 days for the said FY.

The same provisions may not apply for the family members accompanying such person.

An Indian citizen leaves outside India for the first time for the purpose of education (PHD) in FY 2018-19 in July 2018 What will be his/her residential status for the FY 2018-19?

ANSWER: In case of a person, who is citizen of India, and leaves India for employment outside India, then only the condition of stay in India for less than 182 days may be applicable for Residential Status to be NR.

However, in the above case, the individual is leaving for education purpose and not employment, so the condition of physical presence of 60 days during the FY and the more than 365 days during the immediately preceding FY is required to be evaluated.

As he is going outside India for first time and has been in India for more than 60 days during the FY 2018-19, he will qualify as ROR-Resident.

This post covers the FAQs on Sale of Immovable Property by NRI in India 2021.

How is Capital Gains on sale of Immovable Property computed and what are the rates of taxation?

ANSWER. Capital Gains on Sale of Immovable Property in India generally refers to the difference between the sale consideration received and purchase price paid for acquisition of the property (subject to other conditions and exemptions available). Capital Gains may be classified as ‘Short Term Capital Gains’ (STCG) or ‘Long Term Capital Gains’ (LTCG) based on provisions of the Act.

Classification of Capital Gains

Capital Gains on sale of an asset may be classified into LTCG and STCG based on the period of holding as follows:

* Plus applicable Surcharge and Health and Education cess on Income Tax

Manner of Computation of Capital Gains

Illustrative Computation of Taxable Capital Gains in case of Sale of Immovable Property is as follows:

What is Cost of acquisition and Indexed Cost of acquisition for computation of Capital Gains?

ANSWER. Cost of acquisition generally refers to consideration paid for purchase of property. Cost of improvement generally refers to any capital expenditure incurred in making any additions or alterations to the Immovable Property. The cost of acquisition may vary based on several scenarios which are reproduced below:

Property held prior to April 1, 2001:

Where property has been acquired by a person before April 1, 2001 or where the property was acquired through gift or inheritance from the person who acquired the property before April 1, 2001, then the cost of acquisition is the higher of:

1. Actual cost of acquisition of the property or;
2. Fair market value as on April 1, 2001.

However, as per recent amendment in law, the fair market value as on April 1, 2001, has been capped as  not exceeding the ‘’stamp duty value’’ of the property. Further, the term ‘’stamp duty value’’ has been defined to mean the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.

Inheritance / Gift:

In case of inheritance/ gift, the aforesaid cost of acquisition/ improvement shall be the actual cost of acquisition/ improvement of the person from whom the asset is received. The period of holding will be considered from date of original acquisition till the date of sale.

However, there is some difference of opinion regarding whether the benefit of Indexation will be given from the date of Inheritance/ Gift or from date of acquisition of the person from whom the asset is received. The said issue is litigative and pending before Court of Law.

 Indexation: It is a process by which the cost of acquisition/ improvement of a capital asset is adjusted against inflationary rise in the value of asset 

A NRI is selling his residential house in India to a resident Indian. What are the tax obligations of the resident Indian purchasing property from a NRI?

ANSWER. The resident Indian is liable to deduct tax at 30% on STCG or 20% on LTCG arising to NRI from the consideration payable for purchase of Immovable Property and the failure to deduct tax attracts penalty and interest on the resident Indian

He may request NRI to arrange for a Tax Exemption Certificate (TEC) from the Tax Officer directing the amount of appropriate tax to be deducted and withheld from the sale consideration and deposit the same with the Tax Department within the prescribed timelines

It takes about 3 weeks to 6 weeks to obtain TEC from the Tax Department but that protects the resident Indian  from any liability.

What is Stamp duty Value and what if the Stamp duty Value of the Immovable Property sold is greater than the sale consideration?

ANSWER. In case of transfer of an Immovable Property, the Act provides that the actual sale consideration should be compared with the stamp duty value. Stamp duty value is the value assessed at time of registration of the sale of the property with the Registration Authority of the State Government in India. Accordingly, while calculating capital gains, the actual sale consideration is compared with the stamp duty value and higher of the two values should be taken as sale consideration.

However, as per recent amendment in law, only if the Stamp Duty Value exceeds the actual sale consideration by more than 110% of the sale consideration, then in such case while calculating Capital Gains, Stamp Duty Value shall be considered as Full Value of consideration for the purpose of computing the Capital Gains.

What are the options available to NRI to ensure minimum deduction of tax on sale of his Immovable Property?

ANSWER. The normal rate of tax deduction is at the rate of 30% (Plus applicable Surcharge and Health and education cess on Income Tax) on STCG or 20% (Plus applicable Surcharge and Health and education cess on Income Tax) on LTCG, depending upon the period of holding of the Immovable Property. 

However, NRI may be liable to tax at much lower or nil rate on account of:

1. Tax exemption for reinvestment in a residential house or specified Bonds or in CGAS (Capital Gains Account Scheme)
2. There may not be taxable gain on account of benefit of CII or benefit of step up to market value as on 1st April 2001 as cost.

In such a situation, NRI has two options:

1. Apply for Tax Exemption Certificate to Tax officer which directs the Buyer to deduct tax at the amount specified in the TEC.
2. File Return of Income and claim Refund of excess TDS withheld and deposited to Tax Department by the Buyer.
   
   

NRI has sold a residential house on September 1, 2020 after holding it for a period of ten years, and intends to claim exemption of tax on Capital Gains arising on sale of the said house. What are the options available with him to claim exemption? What are the timelines to claim such exemptions?

ANSWER. NRI has the following options to claim exemption of LTCG tax on sale of residential house which is held for more than two years.

Option 1 -- Reinvest in a residential house:

1. At present, NRI can avail exemption if long term capital gains arising on sale of a residential property are re-invested in one residential house property. The Government has extended the said benefit of re-investment to two residential properties, effective from AY 2020-21 i.e. from FY 2019-20 onwards.
2. The aforesaid benefit can be exercised only when the capital gains on sale of residential property does not exceed Rs. 2 crore. It is pertinent to note that the benefit of this provision can be availed, at the option of the person only once in his lifetime.
3. The exemption can be availed if a new residential house was purchased one year before the date of sale of the old residential house (i.e. by September 2, 2019), or purchases a new residential house within a period of two years from the date of sale of the old residential house (i.e. before August 31, 2022), or, construct a new residential house within a period of three years from the date of sale of the old residential house (i.e. on or before August 31, 2023).
4. If NRI has not purchased/constructed the new residential house before July 31, 2021 (i.e. due-date for filing tax return for the year in which the old residential house is sold), and he would like to claim tax exemption then he has to open a banking a/c under the ‘Capital Gains Account Scheme’ (CGAS) with a Nationalized Bank and deposit the amount of Capital Gains and utilize the said deposits for purchasing/construction of the new residential house within the time lines prescribed However, if the amount deposited in CGAS is not utilized wholly or partly in purchasing/construction of the new residential house property within the time lines prescribed in paragraph 1(iii) above, then such unutilized amount would be subject to LTCG tax in the 3^rd year from the date of transfer of old property.
5. Having obtained the tax exemption as above he must hold the new residential house for at least a period of 3 years from the date of its purchase/construction as otherwise he may lose the Tax exemption. If the same is sold before 3 years, while computing Capital Gains from sale of the said new residential house, the cost of acquisition of the new residential house shall be reduced by the amount of exemption claimed and thereby resulting into higher capital gains amount subject to taxation

Option 2 -- Invest in Specified bonds:

 NRI can reinvest the amount of LTCG arising on sale of residential house in Tax saving bond issued by :

1. National Highways Authority of India (NHAI)
2. Rural Electrification Corporation Ltd (REC)
3. Bonds as may be notified by the Central Government. (No bonds are notified by Central Government till date)

Investment is to be made in the above specified bonds within 6 monthsfrom the date of sale of the property.

He investment in specified bonds should not exceed Rs. 50 lakhs and NRI is required to hold the specified bonds for a period of five years. However, if the same is transferred or converted into money within 5 years then exempted capital gains will be taxable in year of ‘’transfer/conversion’’ of such specified bonds.

Further, any borrowings against security of these bonds shall tantamount to ‘’conversion/transfer’’ of such specified bonds into money.

Option 3 -- Investment in equity shares of a new eligible Indian company:

 NRI will be eligible to claim exemption in proportion of amount reinvested in equity shares of a new eligible Indian company or eligible start-up (as defined in Section 54GB of the Act) to the sales consideration received on sale of residential house.

There are several conditions to be complied with in order to claim this reinvestment exemption.

Option 4 -- Investment in units of specified fund:

The Government has provided for an additional amount of exemption of Rs. 50 lakhs that may be invested in the units of specified fund. However, no such specified fund has been notified till date

Whether the reinvestment options change if NRI sells a Capital Asset other than residential house (old capital asset)?

ANSWER.

Option 1 -- Reinvest in a residential house:

1.  If a NRI sells any Long Term Capital Asset, other than residential house, he is eligible to avail exemption from Capital Gains tax if he purchases a new residential house one year before the date of sale of the old capital asset, or purchases a new residential house within a period of two years from the date of sale of the old capital asset, or, construct a new residential house within a period of three years from the date of sale of the old capital asset
2. If NRI has not purchased/constructed the new residential house before July 31, (i.e. due-date for filing tax return for the year in which the old residential house is sold), and he would like to claim tax exemption then he has the option to open a banking a/c under the ‘Capital Gains Account Scheme’ (CGAS) with a Nationalized Bank and deposit the amount of net sale consideration and utilize the said deposits for purchasing/construction of the new residential house within the time lines prescribed However, if the amount deposited in CGAS is not utilized wholly or partly in purchasing/construction of the new residential house property within the time lines prescribed in paragraph 1(i) above, then such unutilized amount would be subject to LTCG tax in the 3^rd year from the date of transfer of old property.
3. Having obtained the tax exemption as above he/she must hold the new residential house for at least a period of 3 years from the date of its purchase/construction as otherwise he may lose the Tax exemption. If the same is sold before 3 years, while computing Capital Gains from sale of the said new residential house, the cost of acquisition of the new residential house shall be reduced by the amount of exemption claimed and thereby resulting into higher capital gains amount subject to taxation
4. If NRI invests the entire net consideration* from sale of such capital asset, he/she shall get total exemption of Capital Gains tax. However if he/she invests partial net consideration, then the exemption shall be available in the same proportion as the proportion of amount reinvested in the residential house bears to the sales proceeds received on sale of the old Capital Asset: The same is reiterated for ready reference as below :

 *Refer answer to FAQ a. above for meaning of Net Sale Consideration

NRI should not hold more than one residential house (other than the new residential house) on the date of sale of the old capital asset.

NRI should not purchase another residential house within a period of 1 year from the date of sale of old capital asset or construct a residential house within a period of 3 years from the date of sale of old capital asset. Ifsaid condition is not satisfied, then capital gains claimed as exempted above on sale of Capital Asset other than residential house property, shall be taxable in year in which such other residential house is purchased/constructed.

Invest in Specified bonds:

Similar to exemption mentioned in FAQ f (2) above.

Investment in units of specified fund:

 Similar to exemption mentioned in FAQ f (4) above.

A NRI sold his residential house and earned LTCG on such sale. He invested the said Capital Gains in another residential house situated in Dubai. Can he/she claim exemption from LTCG?

ANSWER.  Exemptions mentioned in FAQ f (1) and g (1) above are available if a new residential house is purchased in India. Hence, in above case, NRI shall not be eligible for claiming exemption from LTCG.

A NRI sold his residential house and earned LTCG of Rs. 65 lakhs on such sale. From the said Capital Gains, he purchased two residential houses of Rs. 35 lakhs and Rs. 30 lakhs in Mumbai and Bangalore respectively. Can he claim exemption from LTCG?

ANSWER. As stated in FAQ f (1), the Government has extended the benefit of re-investment to two residential properties with effect from AY 2020-21 i.e. from FY 2019-20 onwards. In this case, as the capital gains amount is less than Rs. 2 crore, the NRI can claim exemption from LTCG. However, such exemption can only be availed, at the option of the person only once in his lifetime.

Is filing of Return of Income compulsory for claiming the various exemptions from Capital Gains on sale of Immovable Property?

ANSWER. Yes, the NRI has to file the Return of Income by prescribed due date for claiming the exemptions.

What if the whole or any part of amount invested in Capital Gain Account Scheme is not utilized for purchase of new property within 2 year or construction of the new property within 3 years, as the case may be?

ANSWER. Amount which is not invested in the new property would be subject to the LTCG tax in the year in which the period of 3 years expires from the date of sale of old property.

l. NRI is the owner of a residential house, which was purchased by him in November, 2002. He died in December, 2012, leaving behind this house to his son. His son intends to sell this property in December, 2016. When, how and in whose hands will the Capital Gains be taxed?

ANSWER.

At the time of inheritance:

There shall be no Capital Gains tax in the hands of NRI or his son at the time of inheritance, i.e. on the death of NRI.

At the time of Sale by son:

At the time of sale of the inherited house, the son shall be subject to Capital Gains tax on such sale. The Capital Gains shall be computed as follows:

Further, since period of holding is more than 24 months, the Capital Asset shall qualify as Long Term Capital Asset and shall be eligible for indexed cost of acquisition for the period 2002 till the year in which the property is sold by son.

However, there is legal uncertainty and a possible litigation regarding whether the son will be allowed the benefit of indexation from the year in which the father bought the property (i.e. 2002) or the year of inheritance i.e. upon death of the father (i.e. 2012).

A NRI received advance money/ earnest money for the sale of an Immovable Property. Subsequently, the sale of property transaction was cancelled. However, the NRI retained the advance money/ earnest money as per the agreement. What will be the tax liability on such advance money/ earnest money retained?

ANSWER. Advance money/ earnest money retained by NRI received by him on or after April 1, 2014, shall be taxable under the head ‘Income from Other Sources’. NRI shall be required to pay appropriate taxes on the said income.

Is there any Capital Gain tax implication in case where property is compulsorily acquired by the Government authorities?

ANSWER. Compulsory acquisition of the property by any Government Authority is regarded as ‘transfer’ and/or ‘sale’ and is subject to capital gains as per the provisions of the Act.