In India, cryptocurrency is creating a big buzz in the media; if you look at the Ay news channel, you will see cryptocurrency news. In India, cryptocurrency is considered not legal tender and is a Ponzi scheme. In the recent Union Budget of India, cryptocurrency was declared illegal.
If you are not aware of what cryptocurrency is, let me give you a quick introduction to it.
What Is a Cryptocurrency?
A cryptocurrency is a digital or virtual currency created as an exchange channel. It uses cryptography to secure and authenticate transactions and command the creation of new units of a particular cryptocurrency. Typically, cryptocurrencies are restricted entries in a database that no one can alter unless specific conditions are completed.
There are so many cryptocurrencies in this world that are dealt with and exchanged to create wealth for the holder of cryptocurrency. Still, the most used and highlighted currency is Bitcoin, and we will use Bitcoin as an example to make our topic more understandable for you.
Bitcoin is the first and the most popular of the many cryptocurrencies in the market today. It is based on Blockchain technology. The blockchain is similar to a ledger, and it records Bitcoin transactions. Bitcoin is one of the first cryptocurrencies and was created in the year 2009. Several other cryptocurrencies, like Ethereum, Zcash, Dash, Ripple, etc., have been designed.
In the last two years, the Government Of India has led tremendous stress on a cashless economy. Digital wallets, including cryptocurrencies, could be a promising way ahead. But the decentralized nature of bitcoins or other cryptocurrencies has proved to be a major headache for regulatory government bodies worldwide.
How does Bitcoin Trading work?
Bitcoin can be gained by Mining or by purchasing them on the Bitcoin exchange. You can use exchanges like Bitfinex, Coinbase, Kraken, Bitstamp, Gemini, LocalBitcoins, unocoin, Zebpay, and Coinmama. In India, to purchase and sell Bitcoin. In these exchanges, first, you need to download the Andriod App or visit the website, then make a user account; then you need to furnish Bank Details and Id proofs such as Aadhar Card, Pan Card, Driving license, etc.; after that, there will be verification of documents, and then your account will be activated. After activation, you can buy Bitcoin in any amount you wish. All these exchanges have storage facilities known as wallets to store and transfer Bitcoin to other exchange accounts or any friend using a Bitcoin wallet address. The transfer process is just like sending an email.
GST on Bitcoins
There are several conditions under which GST tax could be put on trading Bitcoin and other cryptocurrencies. Let’s take a look at some states where GST is charged on cryptocurrencies :
Bitcoin Generated from Mining
Mined bitcoins are self-generated capital assets. Hence, it is not possible to determine their cost of acquisition. Also, provisions of Section 55 of the Income-tax Act, 1961, clearly define the cost of acquiring certain self-generated assets. Bitcoin does not come under these provisions. Even though the miner may have had capital gains on its sale, unless and until both houses pass an amendment to Section 55 of the Income Tax Act, no capital gains tax can be levied on mining bitcoins.
Bitcoin is held as an investment.
Bitcoins are liable for a flat 20% tax on long-term gains or the applicable individual tax slab rate on short-term gains if Bitcoin is considered a capital asset. The increment in value at the time of sale will be regarded as long-term or short-term, depending on the holding period of Bitcoin. If considered Income from another source, the taxpayer would have to pay taxes at a rate applicable to the tax slab they fall under. For taxable Income greater than Rs 10 lakh, a tax rate of 30% would be levied compared to the 20% that would have been charged under long-term capital gains.
Bitcoins are held as stock-in-trade.
The Income generated from bitcoins being transferred in exchange for real currency trading at exchange/trading platforms like zebpay would be equivalent to Income from the business. Accordingly, the tax per the individual slab rates would be levied on the profit margins. These trading platforms like zebpay require the new GST registration to accept the payments & charge the GST on service charges, and GST Returns Filings.
Bitcoins received as payment.
Bitcoins transactions received in exchange for goods and services will be considered on par with the receipt of money. These bitcoins would be termed as Income in the hands of the recipient. Further, as the recipient received this payment from a business or profession, the individual would be liable for tax payment accordingly.
Conclusion
The objective of this article was to explain how GST is levied on cryptocurrency. I hope this article was of your liking, and I hope you have cleared the air of doubt surrounding the subject matter.
