Govt may impose GST and Income Tax on Bitcoin Trading
Bitcoin is a cryptocurrency, a digital asset designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than relying on central authorities. Over the course of bitcoin’s history, it has undergone rapid growth to become a significant currency both online and offline. The most significant development that may be supporting a potential sustainable growth trend for Bitcoin is the ongoing adoption of cryptocurrencies.
Taxation is an important aspect when it comes to understanding Bitcoins. There is a lot of ambiguity regarding the legal status of Bitcoins, thus it is very important to understand how the bitcoin traders are tackling the imposition of taxes on it.
Are bitcoins legal?
Bitcoin, as a medium of payment, has neither been authorized nor been regulated by any central authority in India. Further, no set rules, regulations or guidelines are laid down for resolving disputes that could arise while dealing with bitcoins. Hence, bitcoin transactions come with their own set of risks. However, given this background, one cannot conclude that bitcoins are illegal as, so far, there has been no ban on bitcoins in India.
Bitcoin transactions come with their own set of risks. In December 2020, the Enforcement Directorate (ED) arrested a Gujarat-based cryptocurrency trader in connection with a money-laundering probe linked to an online betting racket with Chinese operators. As per media reports, the scam was estimated to be worth Rs 1,000 crore and involved cryptocurrency trading through multiple exchanges.
How are bitcoins taxed?
- The concept of bitcoins being quite new to the Indian market, and the government has not yet brought taxability of bitcoins into the statute books.
- At the same time, the levy of tax on bitcoins cannot be ruled out because the Indian income tax laws have always sought to tax income received irrespective of the form in which it is received.
- There have been many reports claiming that the Bitcoins might come under the purview of income tax.
- However, since they are yet to be legalised in India, there has been no clarity in India.
- A new report has now said that the government is likely to levy both income tax and goods and services tax (GST) on it.
What would be the probable taxability on cryptocurrencies?
- Gains and trading of bitcoins or cryptocurrencies may now attract Income Tax or GST and a circular will be released soon.
- Also, Bitcoins would be categorised as financial services and attract 18% GST on fee commission.
- Both the taxes will be imposed for the current fiscal year.
Bill maybe introduced to ban cryptocurrencies
- There have been no clear guidelines for cryptocurrencies investors to declare their earnings.
- The government of India has listed a bill to be introduced in the Parliament during the Budget session of the 17th Lok Sabha.
- The bill seeks to ban private cryptocurrencies like Bitcoin, Ripple, Ether, and others in India.
- Last year, the Supreme Court asked the government to come up with cryptocurrency regulation policies.
- The apex court in March 2020 struck down the curb on cryptocurrency trade in India.
- The SC quashed an earlier ban imposed by the Reserve Bank of India (RBI) on trading in virtual currencies such as bitcoin.
- The RBI had virtually banned cryptocurrency trading in 2018 and had directed that all entities regulated by it shall not deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling those
- The government is likely to table the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 which is aimed at creating a ‘facilitative framework’ for an official digital currency in India to be issued by the banking regulator, the Reserve Bank of India (RBI).
- According to the RBI booklet on payment systems, the government is sceptical of these currencies and RBI is exploring the creation of a digital version of the Indian national currency.
In India, the regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks. Nevertheless, RBI is exploring the possibility as to whether there is a need for a digital version of fiat currency and, in case there is, how to operationalise it.