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Taxation of Gains on Crypto Currencies

A crypto currency establishes themselves as a new form of digital money. With crypto currencies, an individual may be able to get rid of banks & other centralized middlemen altogether. This is happening because crypto currencies rely on a technology named as block chain, which is decentralized (meaning no single entity is in charge of it). Millions of Indians have invested in crypto currencies and have made large gains in last couple of years. Now, it is the time to file their ITR. But they are not sure how to treat the income from crypto currency trading in their income tax return. There is no any law specifically prescribed in Income Tax laws of land. In this time most of the Tax consultants are not much aware of the taxation facets on crypto currencies. In this article we are trying to clear some queries on various aspects of taxation of crypto currency profits.

We have tried to compile some question and answers to support and clear your queries:

1. Is gains which are made by investing in digital currencies are taxable?

Ans.– Yes, gains which aremade by investing in digital currencies are taxable

2. If the gains are taxable then under which head of income, profits from crypto currencies are to be shown?

Ans.– It depends on your transaction’s nature in cryptos. If it is considered as a regular business then show it as Income from Business. If it is conducted as investments then show under Capital Gains.

3. When tax becomes payable on profits which are made from crypto currencies?

Ans.- In the same procedure you pay taxes on all your income. In the scenario Advance Tax rules even are applicable.

4. If I have received payment in a mode of digital currency for services rendered by me and I haven’t yet sold the same, do I still need to pay taxes?

Ans.– Yes, in that case too you need to pay taxes.

5. On crypto asset what are the deductions (cost) available against my gains?

Ans.- It is depending upon under which head you are showing your income which you gain from digital currency. If it is shown as business, all expenses pertaining to this business are deductible. If it is shown as capital gains, cost of acquisition & improvement are deductible.

6. Gains from crypto investing come in long term capital gains or short term capital gains?

Ans.- If held for more than 3 years, it is long term capital gains else short term capital gains.

7. Whether benefit of indexation available on crypto assets for computing Long Term Capital Gains?

Ans.-Yesbenefit of indexation available on crypto assets for computing Long Term Capital Gains

8. Whether deduction available from capital gains?

Ans.-Yes, as per extant rules.