The cryptocurrency industry is booming in India. With the number of investors and users increasing, the government has seen its fair share of crypto-related issues–Crime, tax evasion and money laundering to name a few. One such issue that has been plaguing Indian citizens is how to determine whether an individual’s holdings are taxable or not.
All of India’s tax laws are embedded in the Income Tax Act of 1961. The Indian Income Tax Department (ITD) employs various strategies to tax an individual’s income and assets. However, these rules aren’t exactly crypto-friendly.
The ITD has classified the cryptocurrency portfolio as a capital asset. This means that they view Bitcoin as an investment instead of a currency. Under the capital gains act, you’re expected to pay taxes based on the sale price of an asset or property minus its cost price (i.e., purchase price). It also considers mining as a business activity and charges taxes accordingly on mining profits.
As mentioned, India does not issue any cryptocurrency-specific laws. The ITD’s rules also do not specifically mention cryptocurrencies, even though they may be involved in the transaction. In fact, the government has taken a neutral position on cryptocurrencies and even issued guidelines for the new technology.
In order to understand how income is taxed under the Indian Income Tax act, consult this overview of Income Tax rules and regulations.
The Rise Of Cryptocurrency Taxation In India
Crypto tax evaders can easily hide their transactions and holdings due to NIL (No information linkage) requirement. In order to determine and capture such transactions and holdings in taxation records, a mandatory KYC (Know Your Customer) report is required.
As per Section 132(I) of the Income Tax Act, any citizen who has transacted an aggregate amount of Indian Rupees 5 lakhs or more during a financial year is required to furnish a return of income. This includes income from cryptocurrency trading as well.
This law also states that all taxpayers who have failed to submit their tax returns on time will be given a grace period of 3 months before their names are published and information about them is shared in the public domain. This is the reason why cryptocurrency investors are rushing to file returns before the end of this financial year (March 31 2018).
In addition, transacting in any property that has no KYC records is considered a tax evader under Section 271AA. This Act considers any person who fails to provide his/her PAN number to another individual.
Tax Evasion In India
Tax on Cryptocurrency in India is currently unregulated by the government, so there’s little that the Indian government can do to counter cryptocurrencies being used for money laundering. As mentioned previously, it’s only listed as a capital asset and not an independent currency.
Crypto tax evaders are making a killing by hiding their transactions and holdings under NIL. The government believes that they’re unlikely to be caught because of the anonymity of cryptocurrency users and exchanges.
The Indian government has set up a 2,000-person task force to combat cryptocurrency tax evasion. As part of its activities in this field, the government is also reviewing its income tax rules and regulations to create a proper framework for cryptocurrencies and their taxation procedures.
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