Are your Cryptocurrencies taxable?

Cryptocurrencies are a form of virtual currency and in the current scenario is held and traded as a form of investment due to its high worth and arbitrage opportunities. The Income Tax Department has recently conducted surveys on various cryptocurrency exchanges in India which has created a scene of panic for everyone who has been dealing with cryptocurrencies.

Is trading of Cryptocurrency legal in India?

The Reserve Bank of India has not legalized the trading of cryptocurrency, however a recent notification regarding the same was issued warning general public about the risks of an investment in the volatile asset. So, it is safe to assume that Government has not banned cryptocurrency and not vocally legalized it either.

On the other hand, cryptocurrency mining is something which can be still considered as a legal business model in our country.

Are my Cryptocurrencies Safe?

The process of crypto mining, the enigmatic nature of its valuation and day to day increase in its popularity has painted a very different picture of what cryptocurrency technology was meant to do. Though the technology behind cryptocurrency is said to be rock-solid but the unnatural fluctuations in its value still make trading of cryptocurrency a volatile business. The recent Income Tax Survey on the bitcoin exchanges was done by the department to know about the high-value transactions done through the unregulated exchanges and it should not be a concerning factor unless you haven’t been planning and filing your taxes properly. If you at any point of time have been holding or dealing with cryptocurrencies worth 2.5 Lakhs or more prepare yourself to get a notice from the income tax department for an explanation the source of such investment in the near future.

Taxability of Cryptocurrencies ?

Direct Taxes:
The Income Tax Act does not differentiate between Legal Income and Illegal income so that’s that. Though Cryptocurrencies are still not a regulated form of currency still any income from it is taxable under the Income Tax Act depending upon the type of income. If the income is derived from trading of cryptocurrency it could be taxed under the head Capital Gains and income derived from its mining could be taxed under the head Profits and Gains From Business & Profession.

Indirect Taxes:
Trading in Cryptocurrency is still not under the ambit of Goods and Services Tax since it is not expressly treated as goods. Few exchanges around the country have reportedly filed applications with the authority of advance rulings to obtain the government’s advice regarding the applicability of GST on cryptocurrency trading. On the other hand, the service income made by Cryptocurrencies exchanges and mining companies are chargeable under the Goods and Services Tax Act.