Implications of Trading Cryptocurrencies in India

Cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than relying on central authorities. Bitcoin is one of the majorly traded Cryptocurrency all over the world. Bitcoin has a good history of growing at a very rapid rate to become a significant currency to be traded all over the world. Bitcoin has changed from 1 Bitcoin = $4916 in March 2020 to around $23,900 in December 2020.

The legal status of trading cryptocurrency in India is still ambiguous and also the tax implication of trading cryptocurrency is also not known to many. So, it is important for everyone to know what are the implication on trading it.

Are Cryptocurrency Legal?

Cryptocurrency are neither been authorised nor been regulated by the central authority of India i.e., Reserve Bank of India. Also, the rules or any guidelines are laid down in India to resolve any disputes regarding the trading of the same. Transactions done for trading of Cryptocurrency comes with its own risk. It cannot be concluded that Cryptocurrency are Illegal.

Taxation on Cryptocurrency?

Cryptocurrency is new in the Indian market not like United States of America where many people accept it as a legal tender. So, the Indian government has not yet made any tax laws on it. But on the same time the tax on trading of Cryptocurrency cannot be ruled out. As per Income tax Laws any income received in India is taxable irrespective in what form it is received.

Although there is currently a lack of clarity over the tax status of cryptocurrencies, the chairman of the Central Board of Direct Taxation has said that anyone making profits from selling cryptocurrencies will have to pay taxes on them.

How will the trading of Cryptocurrency be taxed?

Trading of Cryptocurrency will be classified in Capital Gains, as from the general definition Cryptocurrencies can be classified. There are no provisions for trading of Cryptocurrencies in Income Tax Laws, assumptions can be made that general provisions will apply.

Capital Gains can be classified as Short-Term Capital Gains and Long-Term Capital Gains. General Provision states that if the Cryptocurrencies are traded within 36 months then Short-Term Capital Gains will apply and if the person is holding the Cryptocurrencies for more than 36 months then Long-Term Capital Gains will apply.

Short-Term Capital Gains are taxed at 15% and Long-Term Capital Gains are taxed at 20% with Indexation Benefits.

GST on Cryptocurrencies?

GST is applicable on supply of Goods or on providing service. GST will be applicable if the Cryptocurrencies fall in the definition of Goods or Services. But it is not yet classified as Goods or Services, so it is ambiguous whether GST will be applicable on trading of the same.

But the mining services provided by the wallet providers where the cryptocurrencies are held can be inferred as taxable services just like brokerage for trading of Equity Shares. But the Indian Government has not yet made any comment about GST applicable on Cryptocurrencies.

In recent news it can be seen that Government is in talk with different ministries whether to make the Cryptocurrency legal or put a ban on it. Reserve Bank of India had a put a ban on Cryptocurrency in 2018 but it was reversed by Supreme Court in March 2020. So it can be concluded that Cryptocurrency stand legal as of today.

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