How to show income from cryptocurrency, In your Income tax return in India?

INCOME FROM CRYPTOCURRENCY

With the very known fact that, cryptocurrency is neither legalized nor considered illegal in India, there has been quite a buzz about this digital platform amongst the people of India for its highly considerable returns. It has been widely considered that over 10 percent of the world’s bitcoin trade is accounted by India. Obviously, the people are waiting for the moment when cryptocurrency would be legalized making it a much open market for better investors. However, most of the people engaged in the cryptocurrency trading are unaware or less aware of how they should report their gain/ loss earning from the cryptocurrency.

So, with this being said, it is also important to know how to calculate the income from trading cryptocurrency and how descriptive it should be while filing income tax return in India. As a citizen of India, it is evident that tax must be paid on the incomes and gains earned out of the crypto trade. This is something that has been quite confusing among the people involved in this trade. There have been no guidelines or regulations set up on this market, in India, so far making it difficult to figure out the methods of filing tax returns. On hearing from professionals and tax consultants, you would be said that tax paying for such incomes gained out of digital currency like bitcoin, ethereum, etc. is mandatory.

On 5th April 2018, the Reserve Bank of India barred banks and financial institutions from dealing in cryptocurrencies, But this has become so important to declare your outcomes (Specially Gain) from any trade in cryptocurrency during the F.Y. 2017-18.

So How do we do it? Here is the answer to your question on determining taxable income and filing returns for the income earned out of cryptocurrency.

While Filing your Tax return in India you may show your income on five heads i.e.

1.Income from Salaries
2. Income from house property

3. Income Business and Profession

4. Income from Capital Gain

5. Other Source

As it may seem that the earning from Cryptocurrency cannot be considered under the head “Income from Salaries / House property” finally we have left with another three head.

BUSINESS INCOME

If you are trading in bitcoin very frequently and the income arrived from the source is substantial, it could be considered as a business income. Now you may calculate the income or loss accordingly Even if you are earning income in the form of cryptocurrency” in a consideration of rendering consulting service still you should show this income under the head of business income while filing your tax return. The Central Board of Direct Tax in India has issued a circular earlier in the past to clarify when equity held for a short term as an investment versus a stock in trade.

CAPITAL GAIN

If you invest in the cryptocurrency casually, any income arrived out of the sale of the sale should be considered as a “Short-term Capital Gain”. Various professional tax consultants have favored showing income in this particular head. According to their opinion, the Value of cryptocurrency held is similar to the stock held for trade in any another company. Calculating tax under this head is a bit time taking. Before you finalize the income you must calculate the “Holding period” of cryptocurrency very careful the holding period will eventually decide whether the income shall be considered under “Short-term Capital Gain” or “Long-Term Capital Gain”. If you hold the cryptocurrency a period of more than 2 years it should be considered as long-term capital assets and accordingly, the income arrived from the sale shall be considered as a long-term capital gain, you may also consider indexation while calculating the final taxability.

INCOME FROM OTHER SOURCE

You should opt this head to show your income from cryptocurrency if you are “mining cryptocurrency”. Accordingly, in that case, you must be only selling cryptocurrency and never buying.

Once you determine the source of income under which the income from cryptocurrency shall fall, it will be taxed according to the tax rate given in the Finance budget for the respective financial year.

The income coming under the Long-term capital gain shall be taxed at the rate of 20%. In all the other case income shall be taxed according to the below-given slab rate applicable for the Financial year ending 31 March 2018.

·         The tax slab is classified as follows –

a)      Up to 250000 – no tax.

b)      From 250001 to 500000 – five percent.

c)      From 500001 to 1000000 – twenty percent.

d)     From 1000001 and above – thirty percent.

So, you have what you want. This is how you determine and pay your taxes on trading with the cryptocurrency. One thing that should be noted here is that this is an upcoming market with no recognized regulations that is gaining popularity at an alarming rate. It is important that you maintain your records of transactions perfectly. It would be highly advisable that you pay your taxes regularly on such trading even though there have been no proper guidelines.

 Should you need any assistance in tax filing, feel free to get in touch with us. We shall be glad to assist you.

Team

RG Consultants