The rumor mills surrounding Indian cryptocurrency regulations do not seem to die down, the latest being possible tax liabilities on bitcoin income for traders. India at present doesn’t have a working cryptocurrency regulatory framework in place despite the March order of the Supreme Court nullifying the Reserve Bank of India’s banking ban on cryptocurrency exchanges. Many believed the historical judgment would open the gates for positive Indian cryptocurrency regulations, however, there hasn’t been any concrete step taken to address the issue.
Cryptocurrency Trading Activities That Might Attract Tax Liabilities In India
Advocate Mishra listed five criteria under which an Indian cryptocurrency trader is liable to pay taxes which include the following.
Foreign Account Reporting: Have you used a foreign exchange or foreign-based wallet in the last year ? If so, chances are that you have a few more forms to fill out.
Cryptocurrency tax requirements for transactions: If it comes under asset Category then, given the differing capital gains tax rates for long-term vs. short-term holdings, these two methods can give you slightly different tax obligations.
Cryptocurrency tax requirements for investments: When it comes to Crypto investments as opposed to Crypto transactions, things get even trickier. Imagine if you want to use crypto like Bitcoin in lieu of fiat to make a loan. Let’s say you want to lend 100 Bitcoins at 10 percent interest. Theoretically, your transaction should result in a capital gain of 10 Bitcoin. Thus, you should be liable for taxation on that amount.
Crypto as gifts or inheritance: Crypto received as a gift follows the standard rules of all major gifts.
Taxation of ICO/STO /IEO/ DeFi investments: Crypto taxes for STO investors. In the case of STOs, it’s clear that the tokens are sold as part of a securities offering. As a result, these tokens can be classified in the same way as traditional securities. For ICOS, let’s assume their tokens are considered ‘goods’. This means they do not qualify as securities offerings. As a result, issuers may be liable for income tax from the moment the initial sale of tokens takes place.
The list of crypto-related tax-liabilities is based on the existing income tax laws and security laws, thus making it more complex to understand for the common public. It is important to note that there is no specific appeal made from the government side about the same and going by a couple of articles published in the mainstream media, it seems authorities who collected info on crypto traders back in 2017, is sniffing through the same list to see if the users are trading and paying taxes on it.
However, it is also important to note that crypto traders were already paying taxes on their profit so it was never tax-free in the first place, and the recent hype around crypto taxation in India is primarily because of the rising interest in digital assets again.
Current State of Indian Cryptocurrency Regulations
Crypto exchanges in India turned to self-regulations in absence of any formal guidelines and traders started taking extra caution in their crypto dealings. ANI, the Indian news agency recently interviewed Advocate P M Mishra, Additional Director, Finlaw Consultancy who talked about the probable tax liability on Crypto Currencies in India. Mishra said,
“In the last few months, we received a few cases where clients even received law enforcement agencies’ notices related to Crypto transactions. Few guys believe that how will the income tax department ever know that you have Crypto? Actually, it’s a lot easier than you think. If you’ve traded more than X amount or made over X number of transactions on a Crypto exchange, regulators require the exchange to report your activity directly to them.”