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CA Mitesh and Associates - Chartered Accountants India

 

Specializing in NRI Tax Services, Crypto Accounting, Taxation, and Compliance. We handle Income Tax Notices and provide advisory on FEMA & PMLA.

Indian Investors gain from price arbitrage in Cryptos

Cryptocurrency traders have began making positive aspects by way of price arbitrage on Indian and overseas platforms as costs turned volatile over the previous few days. Trading volumes doubled at some exchanges as costs of Bitcoin and different cryptocurrencies fluctuated. While some exchanges are cautious of…

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Crypto Swing Trading for you?

In this post,we will discuss if Crypto Swing Trading will work for you? Swing Trading is a common investment strategy and one quite different from day trading or position trading. As you’re likely aware already, day trading is perhaps the most well-known trading approach and…

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Cryptocurrency Redefining the Future of Finance?

Cryptocurrency Tax Consultant | CA India | Chartered Accountant India

Cryptocurrency is a thriving ecosystem, quietly encroaching on conventional finance’s territory.

Over the last five years, Bitcoin users and transactions have averaged a growth rate of nearly 60% per year. Similarly, private and public investors have deepened their commitment to cryptocurrencies including Ethereum, Ripple (XRP), and Stellar—and a number of others across the industry.

Today’s infographic unpacks a cross-section of cryptocurrencies, stakeholders, and core applications across a sector that’s continuing to grow in importance.

The Evolution of Cryptocurrency

Cryptocurrency has erupted into a $200 billion industry, sparking a wave of global disruption.

At the heart of cryptocurrency is a rich history of innovation. It extends back to the 1980s with advances in the field of cryptography—eventually leading to the technology that forms encryption techniques designed to protect the network.

Since then, a series of key events have continued to shape the sector.

YearEvent
2009Satoshi Nakamoto mines the first Bitcoin on a decentralized network
2011Litecoin launches
2012Ripple is founded
2013The price of a single Bitcoin reaches $1,000
2015Ethereum launches, introducing smart contracts into the crypto ecosystem
2017Over 1,000 cryptocurrencies listed
2017Bitcoin's price rockets past $10,000, reaching a peak just shy of $20,000
2018EOS offers a blockchain-based infrastructure for decentralized apps (DApps)

 

Now, there are over 5,000 cryptocurrencies in circulation, with many built on innovative applications and use-cases as the ecosystem rapidly evolves.

The Value of Cryptocurrencies

Today, crypto offers cutting-edge advances that are diverse and transformative. In addition, it could also be considered an investment in tomorrow’s financial system—decentralized finance (DeFi).

DeFi is an emerging alternative financial system that is built on a public blockchain, which enables greater accessibility because anyone has the ability to connect to it. Additionally, transactions are publicly visible, enabling greater transparency across the system.

Here is a refresher on some of the practical advantages being applied across cryptocurrencies.

Use CasesNameDescription
PaymentsBitcoin
Ripple (XRP)
Stellar
Dash
Used for purchasing goods without the need of a trusted third-party
Value StorageBitcoin
Litecoin
As the total supply of many cryptocurrencies are limited, this scarcity influences their value
StablecoinsDAI
USDC
GeminiUSD
Digital money that is typically pegged to a currency or commodity, such as gold
PrivacyMonero
Zcash
Cryptography, the technology behind crypto, can enable the anonymity of its owners
Digital OwnershipBitcoin
Ripple (XRP)
Stellar
Can empower those without access to a bank to enter the financial system
Digital GoldBitcoinBitcoin shares similar attributes to money: a medium of exchange, unit of account, and store of value
Decentralized Apps (DApps)EOS
Tezos
Ethereum (ETH)
Enable individuals to create apps without a central authority, directly connecting the user and creator

 

The Key Players in the Crypto Landscape

The cryptocurrency ecosystem is growing rapidly. Worldwide, private and public actors recognize its potential across many domains.

Who are the primary participants in the field today?

Private Actors

  1. Institutional Investors
    Harvard Endowment Fund, Crypto Hedge Funds
  2. Cryptocurrency Exchanges
    Coinbase, Bitstamp
  3. Banks & Finance
    J.P. Morgan, Fidelity Investments, Swissquote
  4. Tech
    IBM, Microsoft
  5. Power & Utilities
    RWE

Public Actors

  1. Governments
    Venezuela
  2. Central Banks
    China, Sweden, Saudi Arabia
  3. Organizations
    Crypto Valley Association, Global Digital Finance

The rising popularity of crypto is bolstering new policies and adoption, as evidenced by the many players trying to break into the space.

The Big Picture:

As crypto continues to gain momentum, its longer-term implications will come into focus. Crucially, its cryptographic foundation sets the stage for future advances in finance.

  1. Privacy
    Anonymized transactions protect users data through cryptographic techniques
  2. Access
    Providing a new financial model for 1.7B unbanked individuals around the world
  3. Efficiency
    Steep reductions in settlement time and efficacy could save consumers $16 billion annually
  4. Security
    Providing immutable, traceable records of security-rich transactional networks
  5. Programmable Money
    Smart contracts could drastically eliminate manual and administrative work⁠— ultimately bypassing them altogether

Rooted in decentralized and autonomous systems, cryptocurrencies are creating second-order effects in the financial world. Ultimately, cryptocurrencies are helping to transform finance as we know it—unlocking countless investment opportunities across the global economy.

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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Budget 2020 Highlights

Another Year - Another Budget and we are here with Budget 2020 Highlights for you. 

 

Individual / HUF / AOP / etc Rate Applicable
 Taxable Income upto Rs. 2.5 lakhs Nil
  INR 2,50,001 to INR 5,00,000 5%
  INR 5,00,001 to INR 10,00,000 20%
 More than INR 10,00,000 30%

You may have noticed the slabs given at the top of this page - yes, these still apply. Read on to find out how.

Our first impressions - the budget looked to continue with the structural reforms that have been getting announced in recent times, including easing of taxpayer compliances. So much so that they have introduced a new section 119A in the Income Tax Act, to notify a Taxpayer’s charter, which shall be adopted by the CBDT in some time.

However, we feel that the execution, especially of the idea of simplification of personal income tax - of reducing the deductions / exemptions and reducing the tax rates, could have been better. We shall cover the key highlights first, and then explain why we feel so.

Key Highlights:

  • Corporate tax cut in Sep 2019: As most readers would be aware by now, there was a structural change in September 2019, in the way corporations are taxed. The corporate tax rate for new companies in the manufacturing sector was slashed to 15%. This concessional rate is available for companies that start their activities on or before 31 March 2023. For the existing companies, the tax rate is 22%. This reduced rate will be applicable for companies that do not avail any other exemptions / deductions as specified. Such companies will also be exempted from the Minimum Alternate Tax provisions.

  • On similar lines, the tax rate applicable for co operative societies has been reduced to 22% to ensure that they have a tax burden at par with corporates.

  • There is a similar thought process attempted in the current budget, on the Personal Income Tax front - there are concessional tax rates available for assessees who are willing to forgo of some of the specified deductions *.

Below are the revised slabs applicable for assessees willing to 'opt in' for this regime.

Taxable Income Slab

Existing Tax Rates

New Tax Rates

0 - 2.5 Lakh

Exempt

Exempt

2.5 - 5 Lakh

5%

5%

5 - 7.5 Lakh

20%

10%

7.5 - 10 Lakh

20%

15%

10 - 12.5 Lakh

30%

20%

12.5 - 15 Lakh

30%

25%

Above 15 Lakh

30%

30%

* Assessees opting for this scheme will forgo below key items of focus of this article, amongst other items (Refer the footnote 1 for full list verbatim):

A. Deductions / Exemptions:

(1) Leave Travel Assistance (LTA) (Section 10(5));

(2) House Rent Allowance (HRA) (Section 10(13A));

(3) Any other receipts in the nature of reimbursements, other than perquisites (Section 10(14));

(4) Standard deduction of INR 1,500 per minor child whose income has been clubbed in the return (Section 10(32));

(5) Standard deduction from Salary income of INR 50,000 and a deduction of INR 2,500 pa from Salary income (subject to actuals) (Section 16);

(6) Deduction in respect of Interest paid on Housing Loan, taken for Self Occupied Property (or the additional allowable Self Occupied Property) (Section 24 (b) read with section 23(2));

(7) All Chapter VIA deductions (Sections 80A upto 80VV). This includes deductions like Life Insurance and Health Insurance premia, tax saver FDs and Mutual funds, PPF contributions by employee, Savings account interest deduction, deductions towards interest expense on loans availed for affordable housing as well as buying electric vehicles, etc.

(8) However, 80CCD(2) and 80JJAA deductions are still allowed - Employer contribution to NPS and Deduction in respect of employment of new employees.

 

B. Loss setoffs will need to be foregone - under the head “Income from house property” with any other head of income.

We shall cover some more analysis on this later on in the article.

  • Additional deduction towards interest paid on loan availed for buying affordable house has been extended upto 31 March 2021 (Section 80EEA) - of course, this applies only for assessees continuing under the existing tax regime.

  • Measures have been initiated to prefill the income tax return, including pre filling of donation related data, so that an individual who opts for the new regime would need no assistance from an expert to file his return and pay income tax.

  • Currently, businesses having turnover of more than INR 1 Crore are required to get their books of accounts audited by an accountant (section 44AB). This limit is now revised to INR 5 Crores. In order to boost less cash economy this limit is applicable only to businesses which carry out less than 5% of their business transactions in cash.

  • Dividend Distribution Tax has been removed, and the dividend will now be taxed in the hands of the recipient - important to note here, that till now, Dividend earned on Equity shares of Indian companies was tax free. Henceforth, this will be taxable as per the slab rates.

  • As a next step to faceless assessments, faceless appeals are being introduced to further improve transparency in the assessment proceedings and improve ease of compliance.

  • A simplified way of sms based filing for nil GST return is also in a pilot mode currently.

  • A system of cash reward is envisaged to incentivise customers to seek invoice.

  • Deposit insurance coverage is increased to INR 5 lakhs from current INR 1 lakh per depositor.

  • Government will also be looking to undertake some key divestments. This includes the balance stake in IDBI Bank via stock exchange and a part of its stake in LIC via the IPO route. Our own view (which may be different for others) is that ideally the government should not be looking to run businesses. They should be facilitators rather than running a business. This is another right step towards that ideal state, and it will also ensure more efficiency in day to day operations of these entities.

 

Apart from these, there are few other marquee announcements, which are worth a mention here:

  • There is an increased focus on use of solar energy which can be seen from some of the measures announced. The PM-KUSUM scheme is being expanded to provide 20 lakh farmers with pump sets linked to solar energy, to reduce their dependence on diesel and kerosene. In addition, a scheme to enable farmers to set up solar power generation capacity on their fallow / barren lands and to sell it to the grid would be operationalized.

  • Indian Railways will be setting up a large solar power capacity alongside the rail tracks, on the land owned by the railways.

  • Four station redevelopment projects and operation of 150 passenger trains would be done through PPP mode. The process of inviting private participation is underway. And more Tejas type trains will connect iconic tourist destinations.

  • It is proposed to provide an outlay of INR 8000 crore over a period of 5 years for the National Mission on Quantum Technologies and Applications.

 

Dissecting the structural changes to personal income tax regime:

Let us see 2 scenarios, where the assessee has an income of INR 16,00,000 (majorly salary income, to enable factoring in the Standard Deduction), and the availed deductions are as mentioned:

 

Scenario A: 

Assessee availing only 80C deductions, alongwith standard deduction:



Particulars

New regime

Existing regime

Income From multiple sources

1,600,000.00

1,600,000.00

Exempt Incomes

  

Petrol allowance

0.00

0.00

Food Coupons

0.00

0.00

Standard Deduction

0.00

50,000.00

Net taxable income

1,600,000.00

1,550,000.00

Income from House Property

0.00

0.00

Total Income

1,600,000.00

1,550,000.00

Deductions:

  

80C

0.00

-150,000.00

80D

0.00

0.00

80CCD(1B)

0.00

0.00

Gross Total Income

1,600,000.00

1,400,000.00

Tax on total income:

  

Upto 2,50,000

0.00

0.00

2,50,001 - 5,00,000

12,500.00

12,500.00

5,00,000 - 7,50,000

25,000.00

50,000.00

7,50,000 - 10,00,000

37,500.00

50,000.00

10,00,000 - 12,50,000

50,000.00

75,000.00

12,50,000 - 15,00,000

62,500.00

45,000.00

Beyond 15,00,000

30,000.00

0.00

Total Income tax

217,500.00

232,500.00

Cess

8,700.00

9,300.00

Total taxes payable

226,200.00

241,800.00

Net advantage / (disadvantage)

 

15,600.00



Scenario B: 

Assessee availing more deductions:

 

Particulars

New regime

Existing regime

Income From multiple sources

1,600,000.00

1,600,000.00

Exempt Incomes

  

Petrol allowance

0.00

0.00

Food Coupons

0.00

0.00

Standard Deduction

0.00

50,000.00

Net taxable income

1,600,000.00

1,550,000.00

Income from House Property

0.00

-200,000.00

Total Income

1,600,000.00

1,350,000.00

Deductions:

  

80C

0.00

-150,000.00

80D

0.00

-50,000.00

80CCD(1B)

0

-50000

Gross Total Income

1,600,000.00

1,100,000.00

Tax on total income:

  

Upto 2,50,000

0.00

0.00

2,50,001 - 5,00,000

12,500.00

12,500.00

5,00,000 - 7,50,000

25,000.00

50,000.00

7,50,000 - 10,00,000

37,500.00

50,000.00

10,00,000 - 12,50,000

50,000.00

30,000.00

12,50,000 - 15,00,000

62,500.00

0.00

Beyond 15,00,000

30,000.00

0.00

Total Income tax

217,500.00

142,500.00

Cess

8,700.00

5,700.00

Total taxes payable

226,200.00

148,200.00

Net advantage / (disadvantage)

 

-78,000.00

 

This shows that in some of the instances, where assessees are claiming lesser deductions, they will have an advantage in the form of tax savings. Else, this new regime is expected to increase the tax liability substantially. However, it is worth noting that this is currently an optional scheme. The assessees not having business income, can make a selection every year. And those having business income, can make the selection only once, and it shall apply for all subsequent years.

 

Also, as mentioned by the honorable Finance Minister during her ensuing press conference, it is aimed that gradually they will be moving towards this new regime, with lower income tax rates and lower deductions - again in line with simplification of Corporate taxation. There is a high probability of having only 1  option some years from now - of less deductions and less taxes.

 

Due to these factors, we feel that this particular reform, could have been implemented in a better way. Its intent is clear - to reduce complexity in filing tax returns, however it is not incentivising enough, or at the risk of stating the obvious - disincentivizing for an average taxpayer to adopt this scheme, since more often than not, it may end up increasing the tax burden.

 

Economic performance:

Lastly, but importantly, the fiscal deficit for FY 2019-20 is revised upwards to 3.8% as against an estimate of 3.3%. This deviation has been taken to accommodate the “structural reforms in the economy with unanticipated fiscal implications” as defined in the FRBM Act - which is nothing but the reforms on corporate and to an extent, personal income tax front.

A return path for fiscal consolidation has been laid out already - including the divestment targets and also partly by achieving a targeted nominal GDP growth rate of 10%. It is important to note here, that Nominal GDP is different from real GDP numbers that are usually seen in the macro data. Real GDP is nothing but Nominal GDP, after eliminating the inflation effect.

 

Conclusion:

We largely see this budget as a continuation of the intent of the government towards modernising and digitising the economy, and improving the ease of compliances. However, certain aspects of the implementation, like the reform on personal income tax, could have been better. Also, we would like to see some more aggressiveness on the divestment part, and further modernising the railways.

 

For any queries/feedback/suggestions, feel free to reach out to us at mitesh@mnpartners.in.

If you wish to avail any of our services, you can view Our Services.

 

Footnotes:
  1. The total income of the individual or Hindu undivided family shall be computed,—

(i) without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or section 10AA or section 16 or clause (b) of section 24 (in respect of the property referred to in sub-section (2) of section 23) or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii), of sub-section (1) or sub-section (2AA), of section 35 or section 35AD or section 35CCC or clause (iia) of section 57 or under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or section 80JJAA;

(ii) without set off of any loss,— (a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i); (b) under the head “Income from house property” with any other head of income;

(iii) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed; and

(iv) without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.

 

Heads of Income

Income is classified under five Heads of Income in the Indian Income Tax Act. Under chapter 4 of Income Tax Act, 1961 (Section 14), income of a person is calculated under various defined heads of income. The total income is first assessed under heads of income and then it is charged for Income Tax as under rules of Income Tax Act. According to Section 14 of Income Tax Act, 1961 there are following heads of income under which total income of a person is calculated:

  1. Income From Salary
  2. Income From House Property
  3. Income From Capital Gain
  4. Income From Business/ Profession
  5. Income From Other Sources
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Income from Salary

What is Salary:

Income under heads of salary is defined as remuneration received by an individual for services rendered by him to undertake a contract whether it is expressed or implied.

According to Income Tax Act there are following conditions where all such remuneration are chargeable to income tax:

  • When due from the former employer or present employer in the previous year, whether paid or not
  • When paid or allowed in the previous year, by or on behalf of a former employer or present employer, though not due or before it becomes
  • When arrears of salary is paid in the previous year by or on behalf of a former employer or present employer, if not charged to tax in the period to which it

What Income Comes Under Head of Salary:

Under section 17 of the Income Tax Act, 1961 there are following incomes which comes under head of salary:

  • Salary (including advance salary)
  • Wages
  • Fees
  • Commissions
  • Pensions
  • Annuity
  • Perquisite
  • Gratuity
  • Annual Bonus
  • Income From Provident Fund
  • Leave Encashment
  • Allowance
  • Awards

The aggregate of the above incomes, after exemptions available, is known as Gross Salary and this is charged under the head income from salary.

Basic salary along with commissions and bonuses is fully taxable.

Allowances :

An allowance is a fixed monetary amount paid by the employer to the employee for expenses related to office work. Allowances are generally included in the salary and taxed unless there are exemptions available.

The following allowances are fully taxable : dearness allowance, city compensatory allowance, overtime allowance, servant allowance and lunch allowance.

Form 16

The employer will give the employee Form 16 which will contain all the earnings, deductions and exemptions available.

Particulars
Amount

Basic Salary

Add:

1. Fees, Commission and Bonus

2. Allowances

3. Perquisites

4. Retirement Benefits

5. Fees, Commission and Bonus

Gross Salary

Less: Deductions from Salary

1. Allowance u/s 16

2. Professional Tax u/s 16

Net Salary

Quick Note about the difference between Exemption and deduction?

If an income is exempt from tax, then it is not included in the computation of income. However, the deduction is given from income chargeable to tax. Section 80 C to 80 U deals with deduction.

Exempt income will never exceed the amount of income. However, the deduct may be less than or equal to or more than the amount of income. Section 10 deals with exemptions.


Income From House Property

 According to Chapter 4, Section 22 - 27 of Income Tax Act, 1961 there is a provision of income under head of house property. In every section from 22-27 there are detail specification of house property income. It is defined as income earned by a person through his house or land.

 

What Income Comes Under Head of House Property:

Annual value of building or land owned by assessee. There is a charge on the potential of property to generate income not on the rent received. But if property is used for making profit in business then it will be taxable not under this head but will be taxable under head of profit in business/ profession. The building can be house, office building, go downs etc.

Points to be remembered

Assessee should be Owner of the Property

Should be not be used for Business or Profession by the assessee In case of dispute regarding title

Any residential or commercial property that you own will be taxed as well. Even if your piece of real estate is not let out, it will be considered earning rental income and you will need to pay tax on it. The income tax blokes are a bit easy going on this – they tax you on the capacity of the real estate to earn income and not the actual rent. This is called the property’s Annual Value and is the higher of the fair rental value, rent received or municipal rent.

Fair Rent – The rent which a similar property will fetch at the same or nearby similar locality Municipal Rent – The value fixed by municipal or local authority

Fair Rent or Municipal Rent whichever is higher taken into consideration Standard Rent – Rent which a owner can claim maximum from his tenant Actual Rent – Rent for which property has been let out.

Standard Rent or Actual Rent whichever is lesser is taken into Consideration

The Annual Value can go through a standard deduction of 30% and if you reduce the interest on borrowed capital, then you get the value which is charged under the head income from house property.

 

Income From Business / Profession

 Income earned through your profession or business is charged under the head “profits and gains of business or profession”. The income chargeable to tax is the difference between the credits received on running the business and expenses incurred.

According to Income Tax Act, 1961 income under this head is defined as the income earned by assessee as a profit or gain in his business or profession. Income under this head must follow these conditions:

  • There must be a business/ profession
  • Business/ profession is being carried by assessee
  • Business/ profession have been carried out by assessee in assessment year for which income tax is filling

What Income Comes Under Head of Profit in Business

 

  • Profits and gains of assessee from any business or profession during assessment year
  • Any payment or compensation due or received by a person for his services to organization as a part of his business
  • Making profit in trade Income of professional or organization against services provided by that professional/organization
  • Profits on sale of a license granted under the Imports (Control) Order, 1955, (EXIM control Act, 1947)
  • Cash received or due by any person against exports under government schemes
  • Any benefit whether it is not in cash coming from business/ profession
  • Any profit, salary, bonus or commission received by company partners

 

Income from Capital Gain

 What is Capital Gain:

According to Income Tax Act,1961 heads of capital gain is defined as gains derived on transfer of capital asset. Capital Gain is the profit or gain of an assessee coming from the transfer of a capital asset effected during the previous year or assessment year. "Capital Asset" and transfer are predefined in income tax act.

What is Capital Asset:

Under section 2(14) of the Income Tax Act,1961 Capital Asset is defined as property of any kind held by assesse including property held for his business or profession. It includes all type real property as well as all rights in property. It is also defined as gains on transfer of assets in which there in no cost of acquisition like:

  • Goodwill of business generated by assessee
  • Tenacy rights
  • Stage carriage permits
  • Loom hours
  • Right to manufacture
  • Processing & production of any article or things

 

Assets Which Don't Come Under Heads of Capital Assets

 According to Income Tax Act,1961 there are few assets which don't form a part of Capital Assets, which are as follows:

  • Stock of goods and raw materials used by assessee for his business or profession
  • Those properties which are movable like wearing apparel, furniture, automobile, phone, household goods etc. Held by assessee. But Jewelry which is also an movable assets comes under heads of Capital Assets
  • Few Gold Bonds issued by government
  • Few special bonds issued by central government like Special Bearer Bonds, 1991

 

Income from other Sources

 Every type of income comes under a specified heads. But there are few incomes, which don't come under any of following heads:

  • Salary
  • House Property
  • Profit In Business/ Profession
  • Capital Gains

Any income that does not fall under the four heads above is taxed under the head “ Income From Other Sources”.

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Cryptocurrencies - Tax Issues & Other Regulations

In this article, we will cover Cryptocurrencies - Tax Issues & Other Regulations around it in India.

BACKGROUND

Crypto-currencies have recently been in the spotlight and under the scanner of the tax authorities primarily due to the high prices at which they were seen trading on exchanges in India and around the world. However, the crypto-currency ecosystem is not all only about the various coins, such as bitcoins, but also includes several other actors and participants. Due to the rapidly evolving business models and complexity of the underlying blockchain technology, regulators and tax authorities are yet to come out with clear positions on various issues. This article attempts to raise questions that still remain unresolved, particularly from the perspective of not only the taxation of crypto-currencies themselves but also the manner in which other participants in the crypro-currency ecosystem are regulated and taxed. This article will also differentiate between a crypto-currency and a utility token which are often interchangeably used in common parlance even though they are fundamentally different with their own unique set of tax challenges.

 

PARTICIPANTS IN THE CRYPTO-CURRENCY ECOSYSTEM

The crypto-currency ecosystem broadly involves the

  • miners
  • nodes
  • traders
  • crypto-currency exchanges
  • hash power rental companies
  • utility companies that issue tokens and
  • the casual consumer/customer who invests into bitcoins.

Briefly each of their roles are described below:

Crypto-currencies - Regulatory and Tax Issues

Miners

This is a term used to describe companies or individuals who use computing power to solve cryptographic problems generated by the blockchain When a miner is the first person to solve a particular cryptographic problem, then the miner is credited with a bitcoin by the blockchain software. For the sake of simplicity, the process of mining or solving the cryptographic problem should be understood to contribute toward the verification of a transaction that is conducted over the blockchain network, for instance, the transfer of a bitcoin from one wallet to another.

Nodes

This is the term used to refer to computing terminals that are part of the system of computing devices that run the blockchain software. Each node has a copy of the blockchain on it. Therefore, the blockchain system is also called a distributed ledger system as the entire record of transactions verified by the blockchain system is available in entirety on every node. The blockchain system is also considered significantly more secure than other softwares primarily because for any transaction to be verified and entered into the distributed ledger or blockchain, more than half the number of nodes connected to the system need to verify the transaction. Therefore, unlike traditional network where with increasing number of participants the network gets increasingly insecure, since each new person could be a source of a hack, the blockchain system gets increasingly secure as controlling more than fifty per cent of the nodes becomes more difficult. Historically, before blockchain became a famous phenomenon, individuals used to use their personal computers or even cell phones for the purpose of mining. However, with the surge in popularity of bitcoin and decreasing supply of mineable bitcoins, miners today use sophisticated hardware that is specially designed for this purpose which provides high end computing power.

Traders

Traders are individuals or companies that in the business of buying and selling bitcoins with the intention of making a profit.

Crypto-currency Exchanges

Crypto- currency exchanges act as online platforms that enable the traders and casual customers to buy and sell crypto- Exchanges perform the important function of market making as crypto-currencies tend to be illiquid in nature and if not for the market created or enable by exchanges trades would become significantly difficult for casual customers especially. Exchanges often allow either a crypto to crypto trade or crypto to fiat currency trade and vice versa. Most of the buying and selling happen between third parties, namely traders or consumers and it is only in very rare scenarios do the exchanges themselves own the cryptocurrency. Some exchanges have also accepted payments or service fees in bitcoins for enabling transactions on the exchange and therefore may be in possession of the same. However, as explained later below, due to the apprehension that ownership of bitcoins may lead to complications under the Goods and Services Acts (GST) or under the Income-tax Act, 1961 (ITA), most exchanges had shifted to operating a mere online platform for fees. Exchanges also self-regulated themselves and implemented stringent KYC norms while onboarding a customer. However, recently the Reserve Bank of India (RBI) has banned all institutions which fall under its regulatory framework from rendering services for any activity of virtual currencies. (Prohibition on dealing with Virtual Currencies, RBI Notification : RBI/2017-18/154 (6-4-2018))

This has caused severe hardship to exchanges and casual consumers who were conducting genuine trade activities. It is expected therefore that exchanges will shift operations abroad, which will result in a loss of revenue for the tax department.

Hash Power Rental Companies

Since mining operations require tremendous amounts of electricity, they appear to usually be globally located in places where cheap electricity is available. In some instances, tax breaks or incentives could result in mining operations being conducted in certain places. Such companies invest money in buying specialized computer equipment that has been designed and manufactured for the purpose of mining bitcoins and then rent the computing power to other miners or third parties in exchange for fees. Therefore, irrespective of whether the miner is actually rewarded the bitcoin or not, the hash power rental companies receive their service fees. These activities should not be affected by the RBI ban mentioned above as their activities are akin to the provision of a cloud computing service or an online data storage place. The ban should not be applicable to them solely because their client uses their computing power towards the mining of bitcoins. Additionally, the concern for RBI while imposing the ban would have been the inability to possibly track cross-border flow of bitcoins and therefore exchange of money effectively, which should not be a concern in this case as the hash power rental company in India is only being paid service fees.

Utility Companies that issue Utility Tokens

Companies have taken to tokenization to popularize their products or services using terms and jargon similar to that of crypto-currencies. However, there is a significant difference between utility tokens and crypto-currencies. Utility token are issued by a company and therefore there is a counter party involved in the issuance On the other hand, cryptocurrencies are issued or granted to the miners by the blockchain software on the solving of the cryptographic puzzle. For a utility token, mere fiat currency would be sufficient to purchase such tokens without conducting any mining activity in most instances. Secondly, the utility token is usually redeemable or exchangeable for services or products offered by the issuing company in the future. The bitcoin does not have any such utility or inherent value and its value is more often dictated by the vagaries of demand and supply. Therefore a utility token is similar to a top up card that is used in food courts where the money is merely tokenized. The tokens in themselves may have a market as they are usually freely tradeable and therefore their value may go up, which is similar to bitcoins. However, once exchanged for services the tokens are consumed which is unlike bitcoins.

Casual consumer/customer

Initially participants in the early stages of the blockchain network were casual participants who undertook this as a hobby or side Today, there are several individuals who are not traders but occasionally like to transact in bitcoins. The RBI ban has made it difficult for them to now sell the bitcoins they own and the prices have fallen as a result of the ban. Customers could also exchange bitcoins in return for any service or good, which is possible in countries like japan which have accepted bitcoins as a mode of payment. Prior to the ban, there was significant interest to undertake arbitrage trading where an individual would ideally want to purchase bitcoins outside India at a lower price and sell it within India where it was trading at a higher price at that point in time. However, the lack of clarity in the regulations and associated risks deterred many customers.

 

TAX AND REGULATORY ISSUES IN THE CRYPTO-CURRENCY ECOSYSTEM

Based on the above description, several tax and regulatory concerns for these parties are highlighted below based on the activities they undertake:

 

  1. The RBI has not notified bitcoins or any other virtual currency as officially recognized currency till date and it look like an unlikely Usually fiat currencies are issued by a central bank or governmental authority and is backed by assets such as gold which are in the possession of the issuing entity. Bitcoin being granted by the blockchain software does not meet those qualifications. Had bitcoin been classified as currency, the impact would have  been that it is immediately out of the ambit of GST since ‘goods’ is defined not to include currency.
  2. Under the Sale of Goods Act, 1930, property of any kind that is movable property would qualify as a good provided it is sold for monetary Therefore, arguably bitcoins are goods under this act only in crypto to fiat or fiat to crypto transactions and as such barter transactions are not recognized (which would in theory include crypto to crypto transactions). Extending the same logic if a person were to purchase other goods using crypto, such transactions would also not be covered by the Sale of Goods Act, 1930.
  3. Under the ITA, capital assets are also defined to be property of any kind and is likely to cover bitcoins as The question then arises as to whether bitcoins could also qualify as stock-in-trade. Based on earlier clarifications by the Central Board of Direct taxes (CBDT) with respect to classification of shares as capital assets or stock-in-trade, it may be possible to take a view that a bitcoin sold by a casual consumer is a capital asset while a trader could possibly treat them as stock in trade. If it is treated as stock-in-trade then taxes would be payable on the consideration received under the head of business income.
  4. Further, once a bitcoin is treated as a capital asset, depending on its period of holding, cost of acquisition and the sale consideration, capital gains should be payable at the time of When consideration is received in fiat currency, there is no difficulty, however in barter transactions, valuation of the consideration could lead to issues or disputes. Further, cost of acquisition is may also prove a challenge when the bitcoin is not acquired from another third party. When a bitcoin is mined, there are no specific rules as to how the cost of acquisition should be calculated. In such a situation, it is possible that it may not be calculable and therefore no capital gains tax should be payable. Alternatively, the expenses incurred in setting up the mining equipment and the running expenses could be counted towards the cost of acquisition and improvement.
  5. Even in situations where the bitcoin is acquired in exchange for services through a barter transaction, issues can be raised as to the value of the consideration received. As bitcoins are traded around the world at different rates and even intra-day prices could significantly differ, it is possible that this could also potentially lead to litigation.
  6. With respect to hash power rental companies, their service fees would be the income that would be subject to income tax, but not the bitcoin that their mining operation generates since that would be deemed be the assets of the customer who has hired their Therefore, this situation should be similar to a company that does research and development for a third party under contract.
  7. For individuals, especially those that had bought bitcoins using cash in the early days of bitcoin or non-resident Indians (NRI), the risk of being scrutinized is When an NRI owns bitcoins outside India then there is no obligation to disclose the existence of the same in India. It is only when an NRI derives income from sale of assets in India that there is a requirement to disclose the same and pay taxes. However, if the NRI were to sell the bitcoins outside India and were to attempt to remit the money into India, since they would have made huge gains, chances are that it will be scrutinized closely. It may even be possible for Income Tax authorities to send notices, as they have in the past, asking about the source of income or the money and to show proof that it is not undisclosed income or black money. This could be a significant problem since at times it may be difficult to prove the manner in which bitcoins were acquired in the early days of the ecosystem. It is also tricky to establish that the bitcoin was located outside India since it is a locationless asset and the closest approximation of a location could be the wallet on it was stored at the time of acquisition. However, it is possible that the consumers are not aware as to the location of the server on which the wallet is hosted in which case it could lead to litigation. 
  8. Similarly, for resident Indians who have bought bitcoins outside India, they are under an obligation to disclose foreign assets and money in their foreign bank Here again, the risks highlighted about with respect to source of funds and location of the asset could prove to be thorny issues even for genuine consumers. Should there be any default detected on their part the penalties could potentially be high.
  9. GST should also be applicable to trades of crypto-currencies as the definition of goods is wide enough to cover intangible property including crypto-currencies. In such an event, when the bitcoin is sold for cash, there would be a single supply that should be subject to Should the bitcoin be traded for another good, it should be considered a barter or in fact two simultaneous supplies and therefore GST would be payable twice resulting in a significant GST impact.
  10. If the supply of bitcoin is by a consumer, but not in course of his business, for instance to buy icecream, then it should not a taxable supply under GST.
  11. Being a locationless good, there are difficulties in determining whether it is an inter-State or intra-State supply of This would also impact whether the trades are across borders or not as well. The taxation and registration implications would differ significantly based on that.
  12. Issues may arise in respect of exchanges as to the value on which GST is payable. Ideally it should only be on the service fee component charged by them, however, the tax authorities may take a different view on the matter.
  13. While there is better clarity on hash power rental companies from a tax standpoint as they can be treated similar to any IT support services company, the Registrar of Companies may refuse to incorporate companies which mention crypto-currencies in the AOA or MOA, which could present a significant practical challenge. Additionally, banks may also choose to be conservative in interpreting the RBI ban and refuse to open a bank account for such companies.
  14. Initial coin offerings, depending on the terms and conditions, could also amount to being securities in which case SEBI may scrutinize such transaction closely in the future.
  15. Utility tokens are more akin to actionable claims as they represent a claim in relation to moveable property or services and therefore may not be taxable under GST which exempts actionable claims from GST, except for betting, gambling and lotteries. Such tokens, depending on the terms and conditions could also amount to a voucher under GST and if they do not qualify as an actionable claim, then the point of taxation is shifted to time at which the token is actually exchanged for services or goods.

 

CONCLUSION

The potential for blockchain technology is huge. It has the ability to be the backbone of India’s digital infrastructure securing all the transactions made on the digital network. Keeping this is mind, it is clear that the technology is here to stay. Outrightly banning crypto-currencies is shortsighted and despite the complexities involved, there are sufficient benefits to consider regulating it and limiting misuse. Globally most countries have embraced it, while only countries with exchange control restrictions such as China or India have banned it. The ban imposed by RBI would be difficult to enforce in practice and as such, consumers lose value, exchanges lose business, the Government loses taxes, while most likely the trades will move either abroad or underground. This is a situation where all stakeholders lose and only way forward is to recognize the flaws of the current approach and take the steps necessary to regulate crypto- currencies in India.


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

CA in Mumbai | Chartered Accountant in Mumbai | Tax Consultant | Tax Advisor | Borivali | Kandivali | Malad

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CA for Cryptocurrency Taxation

We are CA for Cryptocurrency Taxation located in the heart of Mumbai. We have handled dozen's of client with myriad complexities on Cryptocurrency Taxation. No matter what crypto coin you are trading in - Be it Bitcoin, Ethereum, Litecoin, Zcash, Dash, Ripple etc, we can help you navigate the regulatory path with it.

 

Crypto investors and traders have been plagued by regulatory uncertainty in India. As the Indian Government authorities continue to struggle in fundamentally differentiating. Bitcoin from Blockchain, the subcontinent's economy is positioned to lose out on, what is possibly, the century's biggest revolution.

Having added to the fear, uncertainty and doubt, is the ring-fencing notification issued by the RBI, restricting banking access to Indian crypto exchanges. Despite the speed-bump, believers of the Blockchain technology remain undeterred, thanks to which trading volumes have picked up on the Indian exchanges.

Although there isn’t any clarity in tax legislation, the Indian Revenue Authorities are breathing down the necks of crypto traders. It is, therefore, imperative to accurately compute and report any income from cryptocurrencies.

Lets understand some basic fundamentals in this area

1. What is bitcoin?

Bitcoin is one of the earliest forms of cryptocurrency, forming part of the worldwide peer-to-peer payment system.  Cryptocurrency is digital money. It is considered to be more secure that the real money. Cryptocurrency uses something called cryptography to secure its transactions. Cryptography, to put it in simple words is a method of converting comprehensible data into complicated codes which are tough to crack. Cryptocurrencies are classified as a subset of digital currencies, alternative currencies and virtual currencies. Bitcoin was the first ever cryptocurrency created in the year 2009. Subsequently, there has been a rapid increase in the number of cryptocurrencies that have been created some of which are Litecoin, Ethereum, Zcash, Dash, Ripple etc. Bitcoins, in India, have slowly started gaining popularity, given the efforts of the government to move towards a cashless economy. However, one should know that bitcoins, as of today, are not centrally administered or regulated by any specific body like the RBI which administers physical currency in India. In fact, peer-to-peer transactions with bitcoins are managed using something known as the blockchain technology which serves as a public ledger for all transactions.

2. Where does bitcoin come from or how is it generated?

One can obtain bitcoins either by :
  • Mining

Mining is an activity where an individual (called the “miner”) uses his computer prowess to crack computationally difficult puzzles. The process of cracking such puzzles which are integral to the blockchain technology, help in maintaining them. As a reward for this, the miner gets new bitcoins which is nothing but creation of a bitcoin or mining.
  • Purchasing them from a bitcoin exchange against real currency

Everyone cannot be a bitcoin miner. Hence, you can consider buying bitcoins from bitcoin exchanges and store them in an online bitcoin wallet in digital form. Unicorn, Bitxoxo, Zebpay, Coinbase etc., are some of the bitcoin exchanges presently in India. Such bitcoins would be purchased in consideration for real currency. It would be interesting to note that currently, the value of 1 bitcoin is approximately about INR 3,61,610.
  • Receiving bitcoins in consideration of selling goods and services

Though this may not be a common phenomenon in India currently, there are few savvy businessmen who accept bitcoins (instead of real currency) on sale of goods or services, they deal in.

3. Is bitcoin legal in India?

As earlier discussed, bitcoin, as a medium of payment, has neither been authorized nor been regulated by any central authority in India. Further, no set rules, regulations or guidelines have been laid down for resolving disputes that could arise while dealing with bitcoins. Hence, bitcoin transactions come with their own set of risks. However, given this background, one cannot conclude that bitcoins are illegal as, so far, there has been no ban on bitcoins in India. The Supreme Court of India has in its ruling pronounced on 25 February 2019 required the Government to come up with Cryptocurrency regulation policies. The matter had been adjourned in the hearing on 29 March 2019 and has been rescheduled for hearing in the second week of July 2019.

4. How are bitcoins taxed in India?

The concept of bitcoins being quite new to the Indian market, apparently the government has not yet brought taxability of bitcoins into the statute books. At the same time, the levy of tax on bitcoins cannot be ruled out because the Indian income tax laws have always sought to tax income received irrespective of the form in which it is received. Therefore, the possibility of tax on bitcoins can be looked at under the following circumstances:

Scenario A : Bitcoin Mining

Bitcoins created by mining are self-generated capital assets. Subsequent sale of such bitcoins would, in the ordinary course, give rise to capital gains. However, one may note that the cost of acquisition of a bitcoin cannot be determined as it is a self-generated asset. Furthermore, it does not fall under the provisions of Section 55 of the Income-tax Act, 1961 which specifically defines the cost of acquisition of certain self-generated assets. Therefore, the capital gains computation mechanism fails following the Supreme Court decision in the case of B.C.Srinivasa Shetty. Hence, no capital gains tax would arise on the mining of bitcoins. This position would hold till such time the government thinks of coming up with an amendment to Section 55 of the Act. At this juncture, given that the Indian tax laws are silent on the taxability of bitcoins completely, we thought it right to comment on a probable contrary view by the income tax authorities. There is a possibility that the department may not consider bitcoins as capital assets at all. Hence, the provisions of capital gains would not apply at all. Accordingly, the income tax authorities may choose to tax the value of bitcoins received from mining under the head “Income from other sources”  

Scenario B: Bitcoins held as an investment being transferred in exchange for real currency

If bitcoins, which are capital assets, have been held as an investment and are transferred in exchange for real currency, the appreciation in value would give rise to a long term capital gain or a short term capital gain depending on the period of holding of the bitcoin. Further, long term gains would be taxed at a flat rate of 20% while short term gains would be taxed at the individual slab rate. The cost of acquisition for arriving at long term capital gains will be determined after giving the benefit of indexation. A simple example is given below to understand this :
 
ParticularsValue in INR (Only hypothetical)
No. of bitcoins purchased10
INR equivalent of 1 bitcoin at the time of purchase2.72
Value of bitcoins (A)27.2
INR equivalent of 1 bitcoin on the date of transfer8.72
Value of bitcoins (B)87.2
Capital gains (B - A)60.00
Reiterating the probable contrary view of the income tax authorities discussed under Point 1 above, the IT authorities may not consider Bitcoins as a capital asset and hence the provisions of capital gains would not apply. Accordingly, the income tax authorities may choose to tax the gains from bitcoins under the head “Income from other sources”. Further, if the income gets taxed under “Income from other sources”, the taxpayer would have to pay taxes at a rate as applicable to the tax slab he falls under. For eg, if his taxable income exceeds Rs 10 lakh, he would be liable to a tax @ 30% as against the flat rate of tax of 20% he would be liable to pay if charged to tax under long-term capital gains. The benefit of indexation as would be available if taxed under capital gains, would also not be available if taxed under Income from other sources.

Scenario C: Bitcoins held as stock-in-trade being transferred in exchange for real currency

The income arising out of bitcoins trading activity would give rise to income from business and accordingly, the profits arising out of such business would be subject to tax as per the individual slab rates.

Scenario D: Bitcoins being received as consideration on sale of goods and services

Bitcoins being received so shall be treated on par with receipt of money. It would constitute income in the hands of the recipient. Further, since the recipient received this income out of a business or profession, he would be taxed, normally, under the head profits or gains from business or profession. As regards the disclosure requirement of bitcoins in the income tax return forms, there continues to be a lack of clarity. In the budget 2018, our Finance Minister, Mr Arun Jaitley, has stated in the budget speech, “112. Distributed ledger system or the blockchain technology allows the organisation of any chain of records or transactions without the need for intermediaries. The Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto assets in financing illegitimate activities or as part of the payment system. The Government will explore use of blockchain technology proactively for ushering in digital economy.”Further, the Central Bank also has chosen to reinforce its earlier message to “users, holders and traders of Virtual Currencies (“VCs”) including bitcoins regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such VCs.” Therefore, considering that bitcoin transactions are gradually picking up in India, while, laws regulating them are significantly absent, we are hopeful that the government will come up with a notification soon to dispel the ambiguity around the legality of bitcoins, their taxability and disclosure requirement of bitcoins. While this article aims at discussing the taxability of Bitcoins only, the tax treatment on transacting with other cryptocurrencies would also be similar to that in the case of Bitcoins.  
 
CA for Cryptocurrency Taxation | Bitcoin Taxation | Ethereum Taxation
 

Bitcoin Taxation Concepts in India

Cryptocurrency / Bitcoin Taxation Concepts in India Cryptocurrencies / Bitcoin have been subjected to the spotlight of the decade and have been grabbing the attention of the tax authorities essentially due to the high prices at which they were seen trading on exchanges in India…

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India Cryptocurrency Taxation

Cryptocurrency Taxation in India

While India Cryptocurrency Taxation scene is still evolving, in this post I will cover how the cryptocurrency might be taxed in India.

India Cryptocurrency Taxation under Direct Tax Regime

The treatment of cryptocurrencies under the direct tax regime is mainly governed by the Income Tax Act in India. In the current legal landscape, there is no certainty regarding the taxation of cryptocurrency nor any disclosure requirement about the income earned is issued by the Income Tax Department.

Moving on, if cryptocurrency is considered as 'currency', it would not be susceptible to tax under the IT Act.

  • The first reason being, under the Act, the definition of 'income' is an inclusive one, which comprises not only the 'natural' meaning but also the items mentioned under Sec 2(24) of the IT Act. But neither the natural meaning nor Sec 2(24) of the IT Act includes 'money' or 'currency' as income, although it includes 'monetary payment'.
  • Secondly, being a mode of consideration, the tax incidence would be on the transaction and not on the currency. On the other hand, if cryptocurrency is considered as goods/property, then clearly it would be either covered within the charging provision of 'Profit and Gains from Business and Profession' or 'Income from Capital Gains', depending upon its use for business/profession or not. It would not be out of place to state that the ambit of the word 'income' is not restricted to the words 'profits' and 'gains' and anything which can appropriately be designated as 'income' is liable to be taxed under the IT Act, unless expressly exempted.

Treatment under the head 'Capital Gains'

Sec 2(14) of the IT Act defines a capital asset as "property of any kind held by the assessee whether or not connected with his business or profession".  This definition of 'capital asset' provided is widest in itself and covers all kinds of property except those expressly excluded under the Act.0 Therefore, any gains arising out of the transfer of cryptocurrency must be considered as capital gains, if they are held for investment.

Taxability under 'Profit and Gains from Business and Profession'

The tax treatment of cryptocurrencies when held as 'stock in trade' is not the one which faces major difficulties as the issues arising while treating it as capital gains do not arise when such cryptocurrencies are held in furtherance of business activity. Under Sec 2(13) of the IT Act, the definition of 'business' is inclusive, and comprises of "trade, commerce or manufacture or any adventure or concern of such nature." Moreover, any continuous activity like trade in cryptocurrencies is included within this definition, and profits realized are taxable thereunder, chargeable under Sec 28 of the IT Act.

The profits may not necessarily be in the form of money, they are taxable even if they are 'in-kind'. Any expenditure incurred for this purpose, such as the purchase of computing power as a capital asset, should be allowable as a deduction per the provisions specified in Sec 30 to Sec 43D of the IT Act.

India Cryptocurrency Taxation under Indirect Tax Regime

The treatment of cryptocurrency as goods/property implies that the supply of bitcoins is a 'taxable supply' and hence subject to GST. Technically, a supply of cryptocurrency as goods or property in exchange for other virtual/real goods should fall within the ambit of 'barter transaction' since bartering is simply an exchange of one good for another.

Even in its most innovative form, any barter transaction has two essentials -

  1. Direct exchange of goods or services for other goods/services and
  2. No use of money

    Before GST,  under the various state VAT laws, the incidence of tax arose when there was a sale of goods in exchange for cash, deferred payment, or any other valuable consideration. The expression 'any other valuable consideration' leaves out a wide scope of ambiguity, since the term should typically derive reference, ejusdem generis, from its preceding terms (i.e. cash and deferred payment), and therefore, must not include an exchange of goods for other goods. This view was reiterated by the Supreme Court in the case of Sales Tax Commissioner v. Ram Kumar Agarwal, where a transaction of gold bullions in exchange for ornaments was excluded from the definition of sale under Sec 2(h) of the Sale of Goods Act, 1930. However, the position is similar to when a transaction is used as a device to conceal monetary consideration, courts may unravel the device to include it within the ambit of sale.

    An approach where cryptocurrencies are considered as goods means that some transactions would be taxed twice - at first on supply (otherwise exempted for a transaction in money) and secondly on consideration, unnecessarily leading to higher tax. This higher incidence of taxation puts the businesses operating in cryptocurrencies at a huge disadvantage which also diminishes their purchasing capacity. The issue gets further complicated in cases of international transactions.

CONCLUSION

The crypto in today's scenario has the potential to boost the backbone of India's digital infrastructure and also securing all the transactions made on the digital network. In this situation levying taxes on the transactions involving cryptocurrency should be considered a welcoming move and should not be seen as a restriction. It is a two way street for the crypto transactions to be traced and used legally as well as generating income for the government to be used efficiently. It is also vehemently asserted that employing tax on crypto as a policy matter can help to provide an ideal atmosphere to assure the traders that their money is safe and the risks involved in trading are also mitigated.

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