Is Bitcoin legal ter India? What is tax rate on Bitcoin profits?

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Updated on Dec Legitimate, 2018 – 05:20:34 PM

Ter this article wij voorkant the following topics:

1. What is bitcoin?

Bitcoin is one of the earliest forms of cryptocurrency, forming part of the worldwide peer-to-peer payment system.

Cryptocurrency is digital money. It is considered to be more secure that the real money. Cryptocurrency uses something called cryptography to secure its transactions. Cryptography, to waterput it te ordinary words is a method of converting comprehensible gegevens into complicated codes which are harsh to crack. Cryptocurrencies are classified spil a subset of digital currencies, alternative currencies and virtual currencies.

Bitcoin wasgoed the very first everzwijn cryptocurrency created ter the year 2009. Subsequently, there has bot a rapid increase te the number of cryptocurrencies that have bot created some of which are Litecoin, Ethereum, Zcash, Dash, Ripple etc.

Bitcoins, ter India, have leisurely commenced gaining popularity, given the efforts of the government to stir towards a cashless economy. However, one should know that bitcoins, spil of today, are not centrally administered or regulated by any specific figure like the RBI which administers physical currency ter India. Te fact, peer-to-peer transactions with bitcoins are managed using something known spil the blockchain technology which serves spil a public ledger for all transactions.

Two. Where does bitcoin come from or how is it generated?

One can obtain bitcoins either by :


Mining is an activity where an individual (called the “miner”) uses his rekentuig prowess to crack computationally difficult puzzles. The process of cracking such puzzles which are integral to the blockchain technology, help ter maintaining them. Spil a prize for this, the miner gets fresh bitcoins which is nothing but creation of a bitcoin or mining.

Purchasing them from a bitcoin exchange against real currency

Everyone cannot be a bitcoin miner. Hence, you can consider buying bitcoins from bitcoin exchanges and store them ter an online bitcoin wallet ter digital form. Unicorn, Bitxoxo, Zebpay, Coinbase etc. are some of the bitcoin exchanges presently te India. Such bitcoins would be purchased te consideration for real currency. It would be interesting to note that presently, the value of 1 bitcoin is approximately about INR 7,59,642.

Receiving bitcoins te consideration of selling goods and services

However this may not be a common phenomenon ter India presently, there are few savvy businessmen who accept bitcoins (instead of real currency) on sale of goods or services, they overeenkomst te.

Three. Is bitcoin legal te India?

Spil earlier discussed, bitcoin, spil a medium of payment, has neither bot authorized strafgevangenis bot regulated by any central authority ter India. Further, no set rules, regulations or guidelines have bot 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 spil, so far, there has bot no geobsedeerd on bitcoins ter India.

Four. How are bitcoins taxed ter India?

The concept of bitcoins being fairly fresh to the Indian market, evidently the government has not yet brought taxability of bitcoins into the statute books. At the same time, levy of tax on bitcoins cannot be ruled out because the Indian income tax laws has always sought to tax income received irrespective of the form te which it is received.

Therefore, the possibility of tax on bitcoins can be looked at under the following circumstances:

Script A : Bitcoin Mining

Bitcoins created by mining are self-generated capital assets. Subsequent sale of such bitcoins would, te the ordinary course, give rise to capital gains. However, one may note that the cost of acquisition of a bitcoin cannot be determined spil it is a self-generated asset. Further, it also not fall under the provisions of Section 55 of the Income-tax Act, 1961 which specifically defines the cost of acquisition of certain self-generated assets.

Therefore, the capital gains computation mechanism fails following the Supreme Court decision ter the case of B.C.Srinivasa Shetty. Hence, no capital gains tax would arise on mining of bitcoins.

This position would hold till such time the government thinks of coming up with an amendment to Section 55 of the Act.

At this juncture, given that the Indian tax laws are silent on the taxability of bitcoins entirely, wij thought it right to comment on a probable contrary view by the income tax authorities. There is a possibility that the department may not consider bitcoins spil capital assets at all. Hence, the provisions of capital gains would not apply at all. Accordingly, the income tax authorities may choose to tax the value of bitcoins received from mining under the head “Income from other sources”

Script B: Bitcoins held spil an investment being transferred te exchange for real currency

If bitcoins, which are capital assets, have bot held spil an investment and are transferred te exchange for real currency, the appreciation ter value would give rise to a long term capital build up or a brief term capital build up depending on the period of holding of the bitcoin. Further, long term gains would be taxed at a plane rate of 20% while brief term gains would be taxed at the individual slab rate. The cost of acquisition for arriving at long term capital gains will be determined after providing the benefit of indexation.

A ordinary example given below to understand this :

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