Skip to main content You are hereHome Cryptic currency Sarah Saunders The mysterious world of bitcoin Related articlesPrinter-friendly version Back to top» » » Bitcoin sale profit is taxable capital gains for investorLubna Kably MUMBAI: India is not isolated from the rising popularity of bitcoins, which got a boost post-demonetisation.According to industry sources, nearly 300-plus enthusiasts of the cryptocurrency trade daily on Indian bitcoin exchange platforms.Most of these platforms boast of user registrations of more than a lakh.Thus, many taxpayers in India need to understand the I-T nuances of their bitcoin transactions.Curiosity prompted Rakesh M, a Bengaluru-based techie (identity changed), to make his first investment in bitcoins.He sold his investment during the financial year 2016-17 (year ending March 31, 2017) and earned a profit.The perplexing issue for him is: How should he treat the income on sale of the bitcoin for I-T purposes?As a salaried employee, he has to file his I-T return by July 31.

The Central Board of Direct Taxes (CBDT) has not yet issued any guidance.Tax authorities in many countries, such as the US, treat bitcoins a capital asset in hands of investors, with the sale resulting in a capital gain.The I-T department can catch up if you try to evade tax on sale of bitcoins.Benson Samuel, co-founder, Coinsecure, a trading platform for bitcoins in India, points out, "When you sell your bitcoins over an exchange such as Coinsecure, the money flows directly into your bank account.The transaction is completely transparent.Even though not obliged to do so, most bitcoin exchanges also adopt KYC norms for their customers."Bitcoins in India are unregulated but are not yet illegal.However, the RBI has on occasion cautioned investors of inherent risks.An inter-disciplinary committee set up by the government is examining the framework of virtual currencies."That said, even if bitcoins were illegal, income earned needs to be declared and tax paid," says an I-T official.Harshal Kamdar, tax partner, PwC India, says, "Taxability of bitcoins is a nuanced is sue and will depend on facts of each case.

In the absence of CBDT guidelines, the logical conclusion is to treat profits on sale of bitcoins as 'capital gains', unless the person is in the business of trading bitcoins, in which case it would likely be 'business income'.However, we have seen instances, where to be on the safe side, individuals have preferred to treat it as 'income from other sources' where the relevant slab rate of I-T applies, as opposed to a 20% tax with indexation (if applicable), on long-term capital gains".Capital gains for a bitcoin investor Nishith Desai, founder of an international law firm which is working closely with the bitcoin industry, says, "Given the wide nature of definition of capital assets under Section 2(14) of the I-T Act, the purchase of bitcoins, if it has been made for the purpose of investment, should be treated as a capital asset.Thus, any gains arising on transfer (ie: sale) should be characterised as capital gains."Caution point: Short-term capital gains are taxed at the applicable I-T slab rate, which for those with a taxable income of more than Rs 10 lakh is 30% plus applicable surcharge and cess.

On the other hand, long-term capital gains (LTCGs) attract a tax rate of only 20%.The time period for which an asset is held before its sale determines whether it is a longterm asset that is eligible for a lower rate of tax on sale.bitcoin multiple btcFor equity , the holding period prescribed is just 12 months.flags bitcoin mining"The period of holding of bitcoins should be like any other property.bitcoin something seems to be fundamentally wrongIf they are held for three years or more, it should be considered longterm and if less than shortterm," says Desai.php bitcoin shopping cartHot tip: Indexation benefit (which is an adjustment to account for inflation for the period between purchase and sale of a capital asset) can be availed of.ethereal flute music

This would reduce the total tax outgo on capital gains.A cost inflation index (CII) figure is issued by the CBDT each year and the prescribed formula is to be followed.bitcoin phone rechargeBusiness income for a bitcoin trader It may be a bit perplexing to understand whether one would be regarded as an investor or trader.bitcoin farm scam or notDesai points out, "The CBDT has in the past issued a circular (4 2007) which, after taking into consideration various judicial precedents, has set out various tests to determine whether shares are held as investment or stock in trade.The same parameters can also be applied to bitcoins."ethereum payment processorFor instance, if the transactions in bitcoins are substantial and frequent, it could be said that the individual is trading in bitcoins.check balance of bitcoin wallet

In this case, income on sale of bitcoins would be a business income, to which the applicable slab rate of income tax would apply.Thus, for those having a taxable income of more than Rs 10 lakh (including on bitcoin sales) the applicable tax slab rate of 30% plus surcharge and cess is higher than the tax rate of 20% on LTCGs.There is also an additional catch.If you haven't paid any advance tax on income from your bitcoin transactions, it's likely that penal interest will be levied.Stay updated on the go with Times of India News App.Click here to download it for your device.From around the web Crazy Cheap Tracking Device - Selling Like Hotcakes!TrackR Bravo5 Mind-Blowing Innovations That Are Changing The World For..DBSSingapore's Bencoolen Street Gets A Cool MakeoverMove HappyMore from The Times of India Cheese Stuffed Aloo Bonda Mint Chutney With Tamarind Curd Ice Cream From the WebMore From The Times of IndiaTravis Patron is a digital money researcher and author of The Bitcoin Revolution: An Internet of Money.

Here he explains why bitcoin may facilitate a taxation environment subversive to national governments and argues that cryptocurrency is already taxed by default.As the age of cryptocurrency comes into full force, it will facilitate a subversively viable taxation avoidance strategy for many of the technically savvy users of peer-to-peer cryptographic payment systems.In doing so, cryptocurrency will act to erode the tax revenue base of national jurisdictions and, ultimately, reposition taxation as a voluntary, pay-for-performance function.In this post, I'd like to cover some of the benefits such a strategy will have for cryptocurrency investors, why our notion of taxation is ripe for disruption, and why cryptocurrency is already liable for taxation by default.Although investors have been lured by the siren song of tax havens for as long as governments have existed, none have existed with the legal and structural characteristics such as those found in cryptocurrency.By operating behind a veil of cybersecrecy, it is reasonable to forecast the impracticality of systemic taxation on these types of financial assets from national jurisdictions.

Individual enforcement of taxation is likewise impractical due to ideological backlash governments would receive for targeting individuals who avoid national taxation via information technologies.Even so, many jurisdictions have already declared digital currency transactions (something which occurs between consenting parties on a network which no one owns) to be taxable under current legal frameworks.Yet how can the state lay claim to the right to tax that which they do not issue and cannot control?It has been said that compounding interest is one of the most powerful forces in the universe.When we apply the black magic of compounding returns to the profit-maximizing actions of consumers, we see quite clearly why every user aware of the benefits of using cryptocurrency, even if only for the tax-savings, will opt to do so over traditional fiat money.The allure of avoiding the clutches of national taxation is strong enough that any rational consumer will make cryptocurrency a portion of their financial portfolio given they have the sufficient technical understanding.

"Each $5,000 of annual tax payments made over a 40-year period reduces your net worth by $2.2 million assuming a 10% annual return on your investments," reports James Dale Davidson in The Sovereign Individual: Mastering the Transition to the Information Age, "For high income earners in predatory tax regimes (such as the United States), you can expect to lose more of your money through cumulative taxation than you will ever earn."As I explained in the report Bitcoin May Become A Global Reserve Instrument, never before has there existed a tool that can preserve economic and informational assets with such a high degree of security combined with a near-zero marginal cost to the user.This revolutionary capability of the bitcoin network does, and will continue to provide, a subversively lucrative tax super haven in direct correlation with its acceptance on a worldwide basis.Many government agencies have already cued in to the tax avoidance potential of bitcoin and cryptocurrencies.However, it would seem they misjudge this emerging threat looming over their precious tax coffers.

The Financial Crimes Enforcement Network in the United States (FINCEN) for example, , yet makes a false distinction between real currency and virtual currency.FINCEN states: "In contrast to real currency, 'virtual' currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency."It continues: "Virtual currency does not have legal tender status in any jurisdiction."What these agencies fail to realize is cryptocurrency is not virtual in any sense of the word.Indeed it is as real, and perhaps even more real, than traditional fleeting fiat currencies.Bitcoin and cryptocurrency offer a near-perfect alternative to traditional tax havens which are being tightly controlled by the new laws associated with the  (FATCA).In his report Are Cryptocurrencies Super Tax Havens?, Omri Marian makes clear the pressure for financial institutions who interact with the US banking system to hand over account holders, and for a crackdown on offshore tax havens with the enactment of FATCA in 2010.

He states: "Tax policymakers seem to be operating under the faulty assumption that cryptocurrency-based economies are limited by the size of virtual economies.The only virtual aspect of cryptocurrencies, however, is their form.Their operation happens within real economies, and as such their growth potential is, at least theoretically, infinite.Such potential, together with recent developments in cryptocurrencies markets, should alert policy-makers to the urgency of the emerging problem."Current payment processors such as  that government agencies are watching cryptocurrency transactions through the bottlenecks and exchanges where it can be tracked and traced with a high degree of transparency.It should not come as a surprise that governments are watching cryptocurrency, nor that companies are complying with their laws, but understanding why national governments require users of the bitcoin digital economy to cut them a slice of the pie while they contribute nothing to the operation, and in many cases, , remains an utter mystery.

Old laws seldom resist the trends of technology.The attempt of government agencies to levy taxation on cryptocurrency transactions directly is as futile as sweeping back waves of the ocean.No matter the size of broom, state actors will be overrun by continuously expanding waves of cryptocurrency adoption.Interestingly, the same happened with the fax a few decades ago, as James Dale Davidson and William Rees-Mogg explain in The Sovereign Individual: "In the 1980s, it was illegal in the United States to send a fax message.The US Post Office considered faxes to be first-class mail, over which the US Post Office claimed an ancient monopoly ... billions of fax messages later, it is unclear whether anyone ever complied with that law."Every transaction you send with bitcoin or any other cryptocurrency is taxed by default.In the realm of digital currency, the taxation represents the transaction fee which the user decides to (or decides not to) attach to each payment.This user can decide to attach a large fee or no fee at all.

In doing so, the miners of the network will choose preference for the transactions with a larger fee attached, and will work to confirm these payments sooner than those with smaller fees.This transactions queue represents a voluntary, pay-for-performance taxation structure where the performance derived from the system is dependent upon how much taxation they pay.When we come to understand the systemic resilience to judicial intervention, it becomes quite clear that cryptocurrency taxation will remain a voluntary, pay-for-performance function of the network itself.No longer will taxation be enforced through coercion, but become a voluntary act towards increased system performance.Make no mistake, in a crypto-anarchist jurisdiction where there is no means to confiscate or control property on behalf of another individual, .Mass taxation on digital currency is not feasible through judicial enforcement while individual enforcement is bound to prove ineffective.You, or anyone motivated to retain their net worth, will find a subversively lucrative tax haven in the realm of cryptocurrency.