Tax filing for the current year will be a tricky issue more than ever considering that individuals and businesses have to declare profits and losses from cryptocurriencies such as Bitcoins.
It is a fact that many Bitcoin investors in India are unaware that they are liable to file tax returns for any gains or losses arising from dealing in cryptocurrencies. However, the tricky part is that cryptocurriencies are an unregulated market in India and not illegal. There are no definite guidelines either from the Reserve Bank, from market regulator SEBI, CBDT or from the Income Tax department regarding how to file tax returns for income from cryptocurriencies. Hence, the simple rule of thumb is that a taxpayer has to declare his or her income and pay taxes. The pertinent question is under what heading should the tax filing be done? The answer could be either 1. Capital Gains 2. Business Income 3. Professional Income or 4. Income from Other Sources
Captial Gains: If a person is a casual investor in Bitcoins, any profit resulting from sale of cryptocurrency is taxed as short-term capital gains as per the applicable income tax slab rate. If the income exceeds Rs 10 lakh then there will be a 30 percent tax on the profits plus surcharge and cess.
Business Income: If a person is a frequent trader in cryptocurrencies, then he or she has to file taxes under business or trading income. An applicable rate of income tax as per the individual's income slab will apply. If the income exceeds 10 lakh rupees then the applicable tax rate is 30 percent plus surcharge and cess.
Professional Income: If an individual gets paid in cryptocurrency or Bitcoins for his or her work, that will definitely go under the Professional Income heading. An instance for this type of payment is the income earned by freelancers or consultants. An applicable rate of income tax as per the income slab will apply. If the income exceeds Rs 10 lakh then the applicable tax rate is 30 percent plus surcharge and cess.
Income from Other Sources: Income that cannot be reported under salary, house property, capital gains or profession, will go under this heading. Therefore, if an individual is only mining Bitcoins and involved in solely selling can declare his income under this heading.