On 13 December, the income-tax department conducted surveys at bitcoin exchanges across the country including exchanges in Mumbai, Pune, Bengaluru, Delhi, Hyderabad and Gurugram. According to I-T authorities, the survey was conducted to extract information about transactions, parties involved and bank accounts used as part of the authority’s broader efforts to profile and scrutinize assessees who pose a risk of tax evasion. If you as an individual invest or trade in cryptocurrencies such as bitcoins, you have to pay taxes on any gains accruing from a cryptocurrency transaction. 

Tax on bitcoins

Taxation on bitcoins will be applicable depending on how you treat income from bitcoins, based on the frequency of transaction. If the gains from bitcoins is arising due to trading, it will be treated as business income. In case the gains arise due to increase in prices while you hold it as an investment, the gains will be treated as income from other sources. 

Suppose you buy and sell bitcoins regularly, then the gains from the sale of bitcoins will be business income and the loss would be business loss. In case you hold a bitcoin for longer duration and then sell it, the profit will attract capital gains tax. Bitcoins will be treated as capital assets if you buy for investment purposes.

This means if you hold bitcoins for not more than 36 months, the gains arising from it will be considered short-term capital assets. In case of short-term capital gains, the gains from sale of bitcoins would be taxable at your applicable slab rates plus surcharge and education cess. 

If you make gains after holding bitcoins for more than 36 months, then long-term capital gain will be applicable—you will be taxed at 20% plus applicable surcharge and education cess, with the benefit of indexation.

What you should know

Most bitcoin exchanges in India ask you to comply to full know your customer (KYC) process before you start buying bitcoins on their platform.

Hence, they have access to your personal details such as permanent account number (PAN), bank account details and Aadhaar number, which they can provide to the I-T department in case of any scrutiny.

Even if bitcoins are not mentioned in the income tax Act, you still have to pay taxes. As of now, there is not enough clarity on bitcoins in terms of regulation. So, it would be advisable to seek professional help while filing your returns in case of any gains from bitcoins.

Close