The financial market remains abuzz with all sorts of new stories and some of them are about highly impactful items. The most recent of such news stories is that of cryptocurrencies. Cryptocurrencies came to the limelight with skyrocketing rise of the Bitcoin, a virtual currency that grew by 1500% in the last year alone.

There are quite a few concerns that arise with such exceptional growth, the first one obviously being that is it reliable? It is common knowledge that risks and returns are directly related and that one would follow the other, possibly at a different pace but certainly in the same direction.

The principal concern with these cryptocurrencies is that they are not yet officially recognized by Reserve Bank of India (RBI). The apex bank has put out warnings against investing in these virtual currencies simply because there is no regulator in India for these.


Since the RBI is still to recognize these cryptocurrencies, they are neither legal nor illegal. It is just unclear if they should be considered as an asset as they are owned and the owner profits from the increase in its value or should they be considered a long-term investment instrument.

If you buy and sell cryptocurrencies frequently, the gains from such trading must be considered as income from trading when you file your income tax return (ITR). However, it is still not mandatory to do so as the RBI does not yet recognize such virtual currencies. It just advisable so that as and when recognition comes, the ITR may be corrected accordingly and there is no case of hiding income or tax evasion.

Compared to other investments

Cryptocurrencies function like the equities in the stock market and are equally volatile. The risk involved is currently too high though, tending to the pending RBI recognition. The other risk factor is the unbelievable growth in a short time period.

If you do not trade in such currencies, the tax treatment may be different. Just as all other investment instruments, if you stay invested for more than three years, the long-term indexation benefit should be allowed on the capital gains. Moreover, investments less than three years should be considered as short-term capital gains and taxed as per your income tax slab.

An investment instrument that is riskier than equities should not even be considered when compared to other products like fixed deposits (FDs) and Equity-Linked Savings Scheme, popularly known as ELSS funds. The cryptocurrencies are not even close to the risk levels of the mutual funds and other traditional investment instruments although none of these investment products matches the potential earnings that these virtual currencies provide.

It is easy to buy ELSS online, just like cryptocurrencies and most other investment products. However, the amount of uncertainty involved with the future of cryptocurrencies is a major deterrent to investing in them.

If you want to earn higher returns but reduce your risks, ELSS funds are a far safer investment instrument than cryptocurrencies. The amount you invest in ELSS is exempt up to a maximum of INR 1.5 lakh according to section 80C of the Income Tax Act and the returns thereof after the three-year lock-in period are tax exempt. Thus, making it one of the most lucrative investment options in the market. The earnings from cryptocurrencies are not comparable simply because they are extremely volatile and uncertain.

Irrespective of the earnings volatility and pending recognition by RBI, any earnings from cryptocurrency trading or investment must be reported in your ITR. Today the status of these cryptocurrencies is ambiguous but when it is recognized and taxed, all transaction would be scrutinized and in today’s world where everything is being recorded, if you have not declared this income, your transaction records will show the same, and at that future date, you might have to pay a heavier fine.

Though just a possibility, it always better to be safe than sorry. In addition, by declaring your cryptocurrency income on your ITR you are only improving your net worth. This will help you get bigger loans at better interest rates and safely establish that you are fully transparent in your dealings.

If you are seeking to invest in other investment instruments then ARQ, the proprietary investment engine in Angel Wealth’s mobile application may help you carry out the necessary research and analysis to determine and choose the ideal investment instrument that fulfills your financial goals.

The best part about the ARQ is that it carries out the complex analytics and presents them in a simple form, without any human bias, thus improving the accuracy of its results and reports. Download the Angel Wealth mobile app today and buy ELSS online through the technological expertise of the ARQ investment engine.

More Under Income Tax

One Comment

  1. Terra Seva says:

    It is Illegal NOT to Report or Include Income from Any Source in ITR, transaction may not be illegal but withholding it from annual income will be illegal.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

June 2021