Recently, the Government has issued a notice to all Cryptocurrency Activities which is to be recorded and regulated under the Proceeds of Currency Act, 1961. As many of you know, Cryptocurrency includes Digital Cash, Gox, Virtual Currencies and Mobile Phone Money in India. In other words, if you own Cryptocurrency in India, then you need to report it to the Government with every income report you file and if you are an exchange or an agent facilitating the exchange then you need to report it to the Government with your service fees.
According to the latest circular issued from the Reserve Bank of India, which also covers other Cryptocurrency activities in India, the changes in the status of Cryptocurrency in India from restricted to unregistered status is not permitted. The circular also says that as per the definition in paragraph 1 of the Income Tax (Disability Tax Credit and Appreciated Capital Allowance), “the gains allowable to an individual for the period such as rent, mortgage, gift, inheritance, right to depreciate capital and the like”. This definition covers all gains that are made on the sale of Cryptocurrency as well as any gain which is made on the exchange of Cryptocurrency. This also means that anyone who is making profits through their Cryptocurrency transactions and who does not file income tax returns along with the profits, their income will be exempted from the Income Tax.
All Cryptocurrency exchanges and businesses need to be registered under the Companies Register of India. They also need to register under the Central Excise and Customs Registry. According to the Companies House of India, all Cryptocurrency related activities shall be subject to all regulations issued by the Reserve Bank of India, including the duty-free and central rate determination, registration of company name, payment of taxes, application of tariffs, registration of the trademark, indemnity, insolvency, transfer of shares, etc. However, individuals can enjoy benefits under the regulations which are administered by the Reserve Bank of India itself.
Now that you have known what taxes are, let us look at how the Govt says that the gains for Cryptocurrency trading are taxable as income. The first point that we need to understand here is that Cryptocurrency trading is considered to be a low-risk business. This is the reason that the government allows people to earn profits even while they are living abroad. The profits earned through Cryptocurrency trading do not need to be reinvested in the country. As the profits are exempt from taxes, you can use it in any way that you want.
However, the next point that the Govt has to clarify is the type of gains that are taxable as against expenses. We can clearly differentiate expenses from profits. You incur losses and you make gains. Expenses are the expenses that you incur when you purchase goods or services and you make profits out of it. Now that you know that Cryptocurrency trading is considered as a business, you will come to know that there are several things that fall under the tax evasion or tax avoidance categories.
It is essential that you know the difference between taxes that are incurred on the assets of the citizen and taxes that are incurred when the citizen makes sales or purchases from suppliers. In the Cryptocurrency market, the suppliers and the brokers charge their customers with the taxes and this is how the Cryptocurrency profits are earned. If you are wondering how profits are treated as tax-deductible in the first place, you can refer to the Instructions for the Taxation of Capital Gains and Losses. There are other instructions as well, which will help you understand Cryptocurrency trading and how the profits are taxed. It is important to note here that Cryptocurrency trading is only one category among many which fall under taxes. The Govt has established various classifications for you to understand better and identify which type of tax you are liable to pay.
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