#AD
The tax you must pay on holding Bitcoin (or Satoshis, abbreviated as sats, which are a fraction of a whole Bitcoin) depends on your holding period. Less than three years of holding Bitcoin is dubbed a short-term investment, whereas more than 3 years’ worth of holding is considered a long-term investment.
Here’s a quick summary of taxes on Bitcoin in India:
- If you hold your Bitcoin for less than three years, the Central Board of Direct Taxes (CBDT) requires you to pay taxes after clubbing the profits made by Bitcoin holding with your ordinary taxable income. You have to add your taxable income and the profits you made by short-term Bitcoin holding. This total amount will be taxed when you’re filing IT returns. The tax rate depends on your income bracket.
- If you hold your Bitcoin assets for three years or more, the profits made are long-term gains. The long-term capital gains tax is 20% in India. It comes with an indexation benefit.
Note that you need to keep valid records of all purchase and sale transactions related to your Bitcoin holding. Taxes are calculated on Indian Rupee equivalents of the Bitcoin at the time of purchase or sale.
Do you have to pay taxes on Bitcoin and other cryptos?
Yes. You need to pay taxes when investing or trading in Bitcoin and other cryptocurrencies.
How much you pay depends on your income bracket and holding term.
Where and how to report crypto income?
Bitcoin purchased for investment is considered a type of property or capital asset. So, if you will exchange coins on Redot crypto exchange and earn some income, this income will and shall be taxed. Taxes on capital assets are controlled by Section 2(14) of the Income Tax Act 1961. Any profit made on these assets is taxable just as normal capital gains tax.
On the other hand, larger and more frequent Bitcoin transactions fall in trading. As such, the profits made by selling these cryptocurrencies will be taxable as business income.
Now, you know which category you fall in.
1. Short-term (less than 36 months) capital gains are taxable as per the tax rate for your income bracket.
2. Long-term (36 or more months) capital gains are taxable at a flat rate of 20%.
If your income is higher than INR 500,000 then you file these gains in Schedule AL.
A business also needs to show these transactions in its balance sheet.
Individuals who have Bitcoin or other cryptocurrency-based incomes need to fill in ITR-2 and ITR-3 forms.
What happens if you don’t pay crypto taxes?
The government can crack down on you if you’re found to have made considerable profits by the instrument of Bitcoin or other cryptocurrency trading and failing to report any such gains.
There’s still time to report all your past gains.
The Indian government is pretty serious about controlling cryptocurrencies. It even made them illegal back in 2018. Right now, they’re legal to transact in once more, but more sanctions might be coming soon, including strictly imposed tax slabs on the capital profits made by holding or investing in Bitcoin and other cryptocurrencies.
*****
Disclaimer: Cryptocurrency trading involves high risk, and is not suitable for all investors. Before deciding to trade cryptocurrencies, tokens or any other digital asset you should carefully consider your investment objectives, level of experience, and risk appetite. TaxGuru does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions. . By the use of the above information, you agree that Author / TaxGuru is 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.
How the NRI will be taxed on cryptocurrencies used for remittances. Buying Cryptocurrency in one country and selling it in India.