Monday, December 5, 2022

Indian Government Hints at New Tax Rules for Bitcoin Profits

Indian Government Hints at New Tax Rules for Bitcoin Profits

The present uncertain state of regulations concerning the cryptocurrency industry has caused chaos in parts of the world. How should tax rules apply to blockchain gains? Currently, the Indian government is flustered by the absence of a clear set of rules — and so are crypto investors.

Also read: Japan: We’ll Tax All Digital Asset Gains, Including Consumer Purchases and Forks

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Financial advisors and accounting firms presume tax may be levied on profits from bitcoin and digital asset investments. According to them, capital gains from trading could attract 20-30 percent taxes. For now, however, there is little clarity on tax liabilities for such investments in the country.

Other countries, such as the U.S., Australia and Japan, have clarified their positions — cryptocurrencies are treated as assets, not money, and taxed the same as investments in any other asset.

A senior Indian national government official hinted the formation of a committee is imminent, which would differentiate bitcoin trading. However he didn’t reveal any key points:

“Bitcoin taxation is a grey area at the moment. We are yet to look into it in detail. A panel may examine each issue. There is no guideline at the moment. A clarification may come.”

Indian Government Still Unsure About Bitcoin

Over the past year, the Indian government has failed to clarify its stand on the rising crypto market in the country — despite repeated requests. In fact, this will be the second committee to be formed in a year concerning cryptocurrencies.

India flagThe new advisory group will be chaired by a senior finance ministry official. The panel includes officials from IT Ministry, Reserve Bank of India, and other related government divisions.

In April 2017, the government constituted the first panel to research digital currencies. Its role was to analyze global regulations on digital currencies, and subsequently, advocate ways to safeguard crypto investors and prevent the technology from being a money laundering channel.

Earnings from bitcoin may be categorized as business income or capital gains. Tax auditors will be keen to know which, since rates and conditions will be different.

20-30% Tax on Bitcoin Gains?

Officials expect tax will be levied on BTC gains. A senior tax official stated, “One must file returns on income earned from bitcoin trading and pay the short-term capital gains tax at 30 percent”. Hence, clarifying that outstanding returns from bitcoin are taxable and to be mentioned in the returns filed for the fiscal year.

According to some commentators, tax on bitcoin gains held for less than 36 months will be 30 percent, and 20 percent if is held for more than three years. There’s an extra sting — if a crypto investor does not declare they’re earning while filing returns, it could lure up to 50-200 percent penalty.

Indian policeThe recent spike in digital asset prices across the board has rushed many crypto investors to sell their tokens. According to Saurabh Agarwal, co-founder of India’s leading crypto exchange Zebpay:

“For the past two to three days we have seen many Indians selling their bitcoins as most of them had bought these at Rs 50,000 to Rs 5 lakh levels and Rs 10 lakh is a psychological benchmark that many would have had.”

Recent comments by other government officials on taxation has led crypto investors into a state of panic. Jeenendra Bhandari, Partner at Tax Advisory firm MGB told Economic Times “In case anyone sells bitcoin, the gains would definitely attract taxation, depending on his intent to categorize the gains either as business income or capital gains.”

Recently, the Reserve Bank of India reiterated that crypto investors trade at their own risk. This was the third warning from the central bank, reminding bitcoin enthusiasts that no entity is authorized to deal in virtual currencies. RBI issued the first warning in 2013 and the second in February this year.

Many financial experts say it would be better to set out regulations for crypto trading, instead of just issuing warnings.

Should capital gains taxes be applied to digital asset investments? Let’s hear your thoughts.

Images via Pixabay, Wikipedia

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