Just like in real life, there are things in the Tax system as well involving mixed views, good for some, while wrong for others, those which are neither enforced by law nor banned by them. One of them, which has risen in the recent times, is the term "Cryptocurrency".
Strange isn't it? Let's dive in.
Cryptocurrency is a type of digital currency which serves one of the medium of exchange. It uses a technique called cryptography to secure the financial transactions. They maintain a decentralized control which works through a distributed ledger technology known as blockchain that serves as the database. In simple terms the information is stored electronically in digital format in such a way which guarantees the security of the data and generates trust. This allows them to stay out of the government control and also increases the chances of illegal activities like tax evasion, money laundering, etc.
Bitcoin is the earliest forms of cryptocurrencies discovered in the year 2009 and is now gaining popularity in India. Even today, most of the Indian population is not well versed with the this term and has a least understanding of virtual coins.
Inspite of the above fact, it is being estimated that our country has the highest number of crypto owners in the world. The investments by the Indians has touched a value of $ 10 billion in the month of November 2021 (source - Times of India dated 2nd November 2021).
Though, our country has the maximum crypto owners, still the government is in the process of enforcing the law and there are debates ongoing regarding:
1. The legality of cryptocurrencies in the country.
2. The tax impact on transacting in cryptocurrencies.
In 2018, the Reserve Bank of India banned the banks and other financial institutions from transacting in cryptocurrency but in the year 2020, the Apex Court reversed the order allowing the trading of virtual coins with an instruction to the crypto owners to disclose the asset and also the gain/ loss arising from it in the books of accounts.
The question of legality of cryptocurrencies in India is still vague where the government has neither made it as a legal tender nor have put a ban on the transactions. Until now, this medium of exchange has neither been authorized nor have been regulated by any of the authorities in India. No rules and regulations have come up to bind the free trade and enforce law and order to the transactions.
The taxation of cryptocurrencies has always been a major point of discussion amongst the tax professionals and government tax officials. The compliances are being thought of, returns are being revised to position the cryptocurrencies and plans are being made to monitor every move of the virtual coin.
Currently, there are no specific tax positions under the Income Tax Act, 1961 but the experts have speculated various possibilities of taxing along with other mechanisms to keep a control on the virtual currency as below:
Capital Asset: If the assessee trades in cryptocurrency as an option of investment just like investment in shares, mutual funds, etc, then, they must be regarded as capital assets & should be taxed as per the current laws of taxing long term/ short term capital gains @ 20% or 15% respectively.
Business Income: On the contrary, if the above transactions acts as a part of regular affairs i.e day to day business, then, they must be a part of PGBP and should be taxed as per laws of taxing business income.
Other Sources: The experts are also of the opinion that the CBDT may not consider the crypto as capital assets. In that case, the income would be taxed under the head, Income from Other Sources. This is because of the simple reason that gains from Capital Assets are taxed at a lower rate as compared to tax on other sources of income. Since, the transaction in bitcoins are rising steeply, the government may take this position to earn a higher revenue.
Applicability of TDS/ TCS Provisions: The TDS/ TCS provisions were introduced to tax the income at the point of source. Similarly for crypto's, the government would want the tax the income at the time when the income is accrued or received after prescribing a threshold limit.
Statement of Financial Transactions (SFT): The SFT is a detailed information where specified entities are required to disclose the material financial transactions to the Income Tax department. It is recommended to add the transactions of crypto within the the ambit of SFT's to keep a complete control on tax evasions.
No set off or carry forward of losses: Due to high volatility , there are high chances that the investor or the trader may suffer losses from the transactions in cryptocurrencies. Therefore, in order to discourage the investment considering the amount of risk involved and greater chances of losses, it is highly recommended that the government do not allow either the adjustment or carry forward of the losses on cryptocurrencies.
Other Points: The government may also charge GST on the transactions. Moreover, Equalization Levy on transactions with foreign crypto exchanges can also be levied. Also, special income tax rates may also be adopted to tax the profits.
Though the crypto's are gaining popularity is today's world but there are a lot of fraudulent and illegal activities taking place. There are also talks going on that the government is planning to bring out some measures in the Budget 2022 to gain control over these transactions.
Do you think that the this virtual money should be encouraged in times to come?
Please share your views below.
Disclaimer: This article is just a compilation of various thoughts placed by the experts and for a general information and knowledge to the readers.
Thank you for reading!!!
Sources: Times of India, Economic Times, clear tax, TaxGuru
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