The growing volume and value of cryptocurrency transactions across trading exchanges are grappling the attention of the legislative bodies and tax authorities in India. With taxation, the governments can achieve three major goals. First, regulate the cryptocurrency market in the larger interest of the public. Second, stop money laundering and illegal use of the asset. And, third, generate revenue from the trade in the form of income tax and GST.
Limitations of Income Tax Department
The Constitution of India under Article 246 grants the power to levy taxes to the Parliament as well as the state legislatures to impose taxes. Article 265 warrants the need for a predefined law before the Income Tax Department can impose the tax.
Now, all eyes are on the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 that was discussed in the Lok Sabha, and is scheduled to be tabled in Lok Sabha on March 08, 2021.
Though the bill sought a ban on cryptocurrencies and the launch of an official cryptocurrency under the ambit of the RBI, this sounds like a distant dream. Meanwhile, top cryptocurrency entrepreneurs in India have united against the government decision under the umbrella of ABCE (Association for Blockchain &, Crypto and Digital asset Entrepreneurs).
They want to have a dialogue with stakeholders in the Indian government, regulators, and policymakers. The purpose is to explain the benefits of crypto to the government clearly and convince them. In a nutshell, the entrepreneurs expect regulation of digital currencies, rather than a ban.
Methods of Taxation
Direct Tax
Under the current Income Tax Act, there is no specified field in the Income Tax Return Filing (ITR) form where citizens or PAN holders can disclose the income gained through cryptocurrency trading. However, if they liquidate or withdraw the cryptocurrency income, and transfer it to their bank account, then the interest paid by the bank against the deposit has to be disclosed under the regular Interest Income field.
Here is a second thought! Cryptocurrency is a currency that can’t be taxed under the IT Act. It’s the income that is taxed, not the currency. Sec 2(24) of the IT Act doesn’t consider “money” or 'currency' as income, although it includes 'monetary payment'. The taxation has to be on the transaction and not on the currency.
Indirect Tax
What if cryptocurrency is treated as goods/property? Will it attract the GST or do you need to pay a GST when you buy or sell crypto? The answer is Yes. Indirect taxes are part of crypto trading as exchanges charge a transaction fee over the trade, and for the service they render and the fee they earn comes under the ambit of GST. Like any other business, they have to deposit the GST earned over the service. As it’s a service industry, it would be 18% as per the current tax regime.
There is one more way of indirect taxation. Guess? The acceptance of bitcoin or other cryptocurrencies as payment means by merchants paves the way for more GST collection. As consumers find more ways to use cryptocurrency, they are likely to invest more. If you are a business, and wondering about the implementation of bitcoin as a payment mode, you are not new. Check BitcoinWide to know businesses that accept bitcoin as payment. This latest trend is all set to maximize the government’s revenue, provided the government embraces it by regulating cryptocurrency trading.
Visit to : Buy Bitcoin in India
With the passage of the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 on January 29, 2021 in the lower house of the parliament, i.e., Lok Sabha, investors in India might be quite uncertain about their move.
“To create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India.
The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.” Does the bill aim at banning all cryptocurrencies except the sovereign or state-regulated one that has been proposed in the bill?
Responding to a question on cryptocurrency during a question-and-answer session in Rajya Sabha, in the upper house, Minister of State for Finance Anurag Singh Thakur, said: “The government does not consider cryptocurrencies legal tender or coins and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system.” A complete blanket ban seems impossible As of January, a single bitcoin amounted to INR27,613, 69 (USD37,937).
The value of bitcoins worldwide exceeded 100 billion US dollars with millions of dollars’ worth of bitcoins exchanged daily as of May 2018.
In India, Bitcoin is not just traded across all big and small exchanges but is a dominant trading option across spot and futures markets with every exchange.
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