[Update 2022] – In the Budget 2022, it was announced that all cryptocurrency (and digital assets) in India will be taxed at 30%. So the government has made it’s view clear, in a manner of sorts. For more details on the taxation aspect, please read the relevant article here.
If you are a Bitcoin or cryptocurrency investor, sooner or later, you will realize some profits. Hopefully. And when that happens, the question of taxation of Bitcoin profits will occur.
The government hasn’t clarified how and when it will tax the gains from Bitcoin trading. And given the confusing stance on legality of Bitcoin in India, there are some doubts about how it will be taxed. In simple words, things are still a bit unclear regarding the tax impact on the gains earned from cryptocurrencies and Bitcoin investments.
But one thing is sure. The profits will be taxed eventually if not immediately. Think about it. Why wouldn’t it be taxed? Everything is taxed in India and there is no reason for it to be taxed. And I think that’s fair.
I am neither a tax expert nor a CA. So what I say here is mere speculation. It’s best to get in touch with your CA to understand how your Bitcoin profits will be taxed. But this is what I speculate:
- One possibility is that it might be taxed under the head of ‘Income from other Sources’. It will be taxed as per the investor’s income tax slab rates. So if the income tax slab applicable is 5%, then it will be taxed at 5%. Or if it is 20% or 30%, then the Bitcoin profits will be taxed at 20% and 30% respectively.
- Another possibility is that the profits from your Bitcoin investments/trades will be treated as Capital Gains. Then depending on the holding period, the taxation would either be short-term capital gains (taxed as per investor’s income tax slab rate), or as long-term capital gains (taxed at 20% with indexation benefits – just like taxation of debt funds). Or given its volatile nature, it might get the same treatment as equity taxation of 15% and 10% for short-term and long-term capital gains (like 10% LTCG on equity). On a related note, do read Should you Buy & Hold Bitcoin for 10 Years?
So if the government still hasn’t clarified about the nature of taxation of Bitcoin, then should you skip paying taxes on it? Ideally no. Remember, unless specifically stated that an income source is exempted (like agricultural), all incomes are liable to income tax. Another reason for not skipping paying tax is that all cryptocurrency exchanges in India only allow you to invest/trade after you to proper KYC. So the Tax Department can monitor cryptocurrency transactions and earnings of all investors anyway via PAN. They have eyes and ears everywhere. So talk to your CA about this. They would be in a better position to tell you how Bitcoins will be taxed.
By the way, I have written a few detailed notes on other aspects of Bitcoin and other cryptocurrencies. If you are interested in this, you can check the below links:
- Is Bitcoin legal in India?
- Should you invest in Bitcoin?
- What percentage of portfolio should you invest in Bitcoin?
- How about monthly SIP in Bitcoin?
- Which ALTcoins other than Bitcoin to invest in?
- Bitcoin Vs Ethereum: Which to choose?
- Bitcoin Vs Mutual Funds
- HODL, yes not HOLD
- Bitcoin Crash History
- My advice to a Bitcoin Crorepati
So that was about Bitcoin Taxation in India (2023). There are still doubts about the tax on crypto gains in India. Or how to calculate tax on cryptocurrency gains. But sooner or later, there will be full clarity about income tax on cryptocurrency. I hope you found this article on the taxation of cryptocurrency in India (2023) useful. I will update it with more information as and when once more clarity is made available by our Indian tax authorities about how are Bitcoins taxed in India?