Do You Need To Pay Income Tax On Gains From Cryptocurrency?

The rapid rise of cryptocurrency in India has opened up several business and income opportunities for a number of people. Some people are interested in quickly creating wealth by directly trading in the popular, and sometimes high-yield, coins, while others are creating ways to accept them as payments at restaurants and online shops. There are also some who may have gained cryptocurrency through mining. However, there is some confusion about how the government may tax these incomes or how an individual or institution should declare them. The move by authorities to first ban and then allow trading in virtual coins has only added to the confusion..In 2018, the Reserve Bank of India banned banks and other financial institutions from facilitating transactions in cryptocurrency like Bitcoin, Ethereum, Dogecoin, and others. Later, in early 2020, the Supreme Court reversed the order, allowing trading of these virtual coins. Still, they have not yet received the status of a legal tender in India. The RBI has said it is working on its own cryptocurrency and will proceed with caution, keeping in mind the disruption this new form of currency may cause to the existing financial order. .Despite all that, you will have to pay taxes on these incomes. The confusion is whether to declare them as capital gains or in any other source..The government plans to compartmentalize virtual currencies and their tax based on their use, be it investments, payments, or utility..The government has already made it mandatory for companies dealing with virtual currencies to disclose profit or loss incurred on transactions. It also asked them to disclose the amount of cryptocurrency they hold in their balance sheets. But this has not yet brought the taxability laws to govern their transactions. Still, the income tax laws have always sought to tax income received irrespective of how it was received..So there are primarily four scenarios of income from cryptocurrency..1.Mining.Mined cryptocurrencies are self-generated capital assets. Subsequent sale of such bitcoins would usually give rise to capital gains..2. Transferred in exchange for real currency .The appreciation in the value of cryptocurrency held as an investment may classify as a long-term capital gain or a short-term capital gain depending on how long the asset has been held..3. Income from trading activity .The income from trading crypto coins would constitute income from business and hence the profit can be taxed as applicable tax slabs..4. Received on sale of goods and services .These cryptocurrency gains can be treated on a par with receipt of money. So the recipient would be taxed under the head profits or gains from business or profession.

Do You Need To Pay Income Tax On Gains From Cryptocurrency?

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