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Still not paid taxes on Bitcoin gains? I-T notice could be on the way

Based on the holding period, you have to pay short-term or long-term capital gains tax

Tinesh Bhasin 

Bitcoin
A Bitcoin (virtual currency) coin is seen in an illustration picture taken at La Maison du Bitcoin in Paris (Photo: Reuters)

While like Bitcoin are gaining popularity, there is still lack of clarity on how they should be taxed. Many buyers of cryptocurrencies, therefore, don’t pay on the gains they make on selling them. Software developer Pawan Bharti recently sold Bitcoin worth Rs 55,000 after his investment doubled. “Neither my friends nor I am aware that we need to pay on these gains,” says Bharti. He is planning to invest the money in fixed-income instruments. experts, however, say that investors are obliged to pay on their gains in “What investors don’t realise is that the Income Act may not cover the taxation of specifically. But there are provisions that cover all kinds of income and gains,” says Archit Gupta, chief executive officer, ClearTax. The definition of capital assets under Section 2 (14) is broad enough to include any investment in crypto currencies. The taxation of will depend on the purpose for which an individual buys it, say experts. If a person has purchased a virtual currency to pay for goods, then there should be no It’s as good as cash in the wallet that one uses for transactions. But the use of for such payments is less common. Most people buy it to make a profit on price changes. Any profit arising out of the sale of can be construed as capital gains, according to experts. “Accordingly, the capital gains will be applicable depending upon the holding period of such investments,” says Suresh Surana, founder, RSM Astute Consulting Group. If these are held as an investment for three years or more, the gains will be considered as long-term capital gains. The investor will need to pay 20 per cent after considering indexation benefit.

If an individual sells it within a shorter time period, the gains will be treated as short-term capital gains. The profit will be clubbed with the investor's income and he will have to pay depending on his income slab. If the transactions in bitcoins are substantial and frequent, it could be said that the individual is trading in bitcoins. The treatment would then change and the gains made would be considered as business income. It means the is payable according to the applicable slab rates of the investor. There is no clear definition of what constitutes “frequent” transactions. experts say it would vary from case to case. If it is a business income, the investor would also need to pay advance tax, failing which there would be a penalty. What many don’t realise is that the authorities can easily track the transactions in “All virtual currency exchanges onboard customer after complying with the (Know Your Customer) requirements. There’s also a banking trail to all transactions,” says Saurabh Agrawal, co-founder and CEO of Bitcoin exchange Zebpay. If you have not paid taxes on Bitcoin transactions, then the income authorities may send a notice asking you to explain the gains reflected in your bank account. The assessing officer will then give an opportunity for you to revise the returns and pay applicable In case you have losses, experts say don’t set them off or carry them forward. Many expect Central Board of Direct Taxation to notify rules on taxation of soon. Bitcoin debut on stock exchange Bitcoin made its debut on a major bourse on Sunday, opening at $15,000 per unit at the Chicago board options exchange. Around 23:20 GMT, the price of the currency had risen to $15,940 dollars on a futures contract scheduled for settlement on January 17 according to data provided by the Chicago board options exchange (Cboe). This was still far short of its highs of $17,000 on other non-regulated online platforms last week. The Cboe website was down at the time of the debut. ALSO READ: Bitcoin debut on stock exchange: Opens at $15,000; Cboe website crashes

First Published: Mon, December 11 2017. 10:46 IST
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