What is Cryptocurrency?

Cryptocurrency is a Digital currency that can be exchanged online for goods and services,but uses an online ledger with strong cryptography to secure online transactions.

Cryptocurrencies work using a technology called Blockchain.

There are more than 4,000 cryptocurrencies in existence but Bitcoin has a large lead as compared to any other cryptocurrency. Bitcoin is more accessible, with more exchanges, more merchants, more software and more hardware that support it.

In April 2018RBI banned banks and other regulated entities from supporting Crypto transactions after digital currencies were used for frauds.

There is no law prohibiting Indians from buying/selling cryptocurrencies in India. However, the Supreme Court of India quashed the banking ban in 2020.

How to do Deal in Cryptocurrency?

There are many Brokers available in the market for trading in Bitcoins.

You can buy/ sell fractional shares of Bitcoins also via an exchange. In India, most exchanges offer a minimum capital requirement as low as Rs.100 – Rs.500. These exchanges may charge a small fee for enabling these transactions.

While choosing your platform, make sure it is simple to use. Verify the details of the team behind the platform. And most importantly, try to avoid platforms that do not have a KYC in place as it may not be very secure.

On 6 May 2020, Bitcoins was traded at Rs.7 Lakhs around and on today it is trading at 40 Lakhs.

Applicability Of GST on Trading in Cryptocurrency?

The taxable event in GST is supply of goods or services or both. Various taxable events like manufacture, sale, rendering of service, purchase, entry into a territory of state etc

“Services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.

It typically does not exist in physical form (like paper money) and is typically not issued by a central authority.

So Basically, Crptocurrency is not Money.So it is covered under GST.

Buying and selling of crypto currencies will be considered under the category of supply of goods.

  • Trading may attract 18 percent GST.

Applicability of Income Tax on Cryptocurrency?

Taxation of income in India is governed by the provisions of the Income Tax Act, 1961.

First, it’s important to know that the gains derived from the sale of cryptocurrencies can be classified as either capital gains or business income. This classification will decide which tax return form one needs to file and how much tax will be levied on the gains.

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.

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).

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.

Its taxability would be same as of the other incomes.

Thanks for Reading!

For any query you can mail me at [email protected]!

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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. This is not any kind of advertisement or solicitation of work by a professional.

Author Bio

Qualification: CA in Practice
Company: PARAKH GUPTA AND CO
Location: Meerut, Uttar Pradesh, India
Member Since: 10 Apr 2021 | Total Posts: 7
Practicing CA having knowledge of Income Tax, Gst, Corporate Laws and compliances related to firms. A Professional with strong academic background. View Full Profile

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3 Comments

  1. Anand says:

    Client owns an app for trading in cryptocurrency & also is a gaming platform. Client is a company registered in India. Will this come under OIDAR services? If app is downloaded outside India will it amount to Export of Services ?Will LUT be applicable? Will this require mandatory registration irrespective of the turnover ? Please advise.

  2. CA. M. Lakshmanan says:

    Till issue of Cryto Currencies are regulated by an ACT the dealings should be banned because nobody knows who are issuing(mining) the coins, the volume in circulation, who decides the price, etc., Further the cureencies being used for illegal purposes is not ruled out. If such currencies are allowed to be in circulation at a later date many will loose lot of money and few computer savy will make lot of money.

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