{"id":898,"date":"2017-12-17T11:42:23","date_gmt":"2017-12-17T06:12:23","guid":{"rendered":"https:\/\/blog.ritulpatwa.com\/?p=898"},"modified":"2017-12-17T11:41:42","modified_gmt":"2017-12-17T06:11:42","slug":"taxation-of-bitcoins-under-income-tax-gst-in-india","status":"publish","type":"post","link":"https:\/\/blog.ritulpatwa.com\/?p=898","title":{"rendered":"TAXATION OF BITCOINS UNDER INCOME TAX & GST IN INDIA"},"content":{"rendered":"

A) WHAT IS A BITCOIN?<\/strong><\/p>\n

BITCOIN is a Crypto-Currency that works on Distributed Ledger System or BlockChain concept, which operates on an undisclosed Algorithm and is capable of recording transactions between two parties efficiently and in a verifiable and permanent way.<\/p>\n

Key Elements of a BITCOIN are:-<\/p>\n

1. Uses Hash Pointer as a link between Blocks;<\/p>\n

2. Maintain records of transaction data with a Timestamp; and<\/p>\n

3. Efficient, verifiable and permanent \u2013 cannot be altered retroactively.<\/p>\n

 <\/p>\n

B) IS BITCOIN LEGAL IN INDIA?<\/strong><\/p>\n

BITCOIN as a medium of payment that has neither been authorised nor being regulated by any central authority in India; Currently no set of rules, regulations or guidelines have been laid down for resolving disputes that could arise while dealing with BITCOINS;<\/p>\n

Given the above background \u201cOne <\/i><\/b>cannot conclude that <\/i><\/b>BITCOINS <\/i><\/b>are illegal <\/i><\/b>since till now, <\/i><\/b>there <\/i><\/b>is <\/i><\/b>no ban on <\/i><\/b>BITCOINS <\/i><\/b>in India<\/i><\/b>.<\/i><\/b>\u201d<\/p>\n

Our View on Legality of BITCOIN<\/b><\/span> : BITCOIN at present is unregulated and is not covered within the meaning of currency of legal tender in India AND a more appropriate way of treatment of BITCOIN is to treat it like a digital commodity that has been ascribed an arbitary value by those who deal with it. A retrospective Law or Clarification by government cannot be ruled out in case of BITCOINS.<\/p>\n

 <\/p>\n

C)\u00a0HOW DO YOU GET\u00a0BITCOINS?<\/strong><\/p>\n

SOURCE 1 : MINING<\/span><\/p>\n

The process of adding transaction records to Bitcoins Public Ledger of past transactions i.e. finding new Blocks with a\u00a0 SHA-256 hash of a Blocks Header, that is acceptable by the network is called Mining; The rate of discovery is approximately 1 block in every 10.71 Minutes [i.e. 60 min * 24 hrs * 15 days \/ 2016]. Current reward for finding a new Block is 12.50 Bitcoins, which will be halved after discovery of every 2,10,000 blocks;<\/p>\n

SOURCE 2 : PURCHASING<\/span><\/p>\n

Bitcoins can be purchased against real currency from Bitcoin Exchanges and store them in an online Bitcoin Wallet in a Digital Form;<\/p>\n

SOURCE 3 : RECEIVED AGAINST SALE OF GOODS & SERVICES<\/span><\/p>\n

You can receive Bitcoins (instead of real currency) on Sale of Goods and Services.<\/p>\n

 <\/p>\n

D)\u00a0TAXABILITY OF BITCOINS UNDER\u00a0 THE INCOME TAX ACT OF INDIA<\/b><\/strong><\/p>\n

 <\/p>\n

SOURCE 1 : BITCOIN GENERATED THROUGH MINING<\/b><\/p>\n

Accounting Treatment A <\/b><\/span>: BITCOIN Treated as Capital Asset by the <\/span>Assessee<\/span><\/p>\n

>\u00a0 Bitcoins created by Mining are Self Generated Capital Asset;<\/p>\n

>\u00a0 The Cost of Bitcoin is NIL;<\/p>\n

>\u00a0 Income Tax on Capital Gains from sale of Bitcoin has to be paid as \u00a0 below:-<\/p>\n\n\n\n\n\n
Period of Holding<\/b> BITCOIN<\/b><\/td>\nTreatment<\/b><\/td>\nRate of Income Tax<\/b><\/td>\n<\/tr>\n
Upto 36 Months<\/td>\nShort Term Capital Asset<\/td>\nSame as applicable on other Incomes of the Assessee<\/td>\n<\/tr>\n
More than 36 Months<\/td>\nLong Term Capital Asset<\/td>\n20% of Sale Value<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

NOTE : Few consultants considers Sale of <\/i>Bitcoins<\/i> generated by Mining as Exempt, since their cost cannot be identified, referring the decision of <\/i>H\u2019ble<\/i> Supreme Court in the case of CIT <\/i>v B.C. <\/i>Srinivasa<\/i> Setty<\/i> (1981) 128 ITR 294 (SC<\/i>). We do not agree with this view, since BITCOIN are covered within the definition of Capital Asset as per Sec 2(14) of the I. T. Act and this view may be a matter of debate & Litigation.<\/i><\/p>\n

 <\/p>\n

Accounting Treatment B <\/b><\/span>: <\/span>BITCOIN Mining is <\/span>the Business of the <\/span>Assessee<\/span><\/p>\n

>\u00a0 BITCOINS are Stock in Trade for the Assessee;<\/p>\n

>\u00a0 All direct expenses incurred in the process of Mining of Bitcoins like \u00a0 Electricity, Salaries, Depreciation of\u00a0 Computers etc shall be considered \u00a0 as the cost of Bitcoins; and the closing stock of Bitcoins at the year end \u00a0 shall be treated as lower of Cost or Net Realisable Value;<\/p>\n

>\u00a0 The proceeds from the Sale of Bitcoin shall be Revenue Receipt of the \u00a0 Assessee;<\/p>\n

>\u00a0 Net Profit = Sale Value of Bitcoin \u2013 Cost of Bitcoin Generation;<\/p>\n

>\u00a0 Income Tax = Net Profit * Applicable Rate (Slab) of IT on Assessee<\/p>\n

 <\/p>\n

SOURCE 2 : BITCOIN PURCHASED AGAINST REAL CURRENCY<\/b><\/p>\n

Accounting Treatment A <\/b><\/span>: BITCOIN held as Investment by the <\/span>Assessee<\/span><\/p>\n

>\u00a0 Cost Price (CP) = The cost at which the Bitcoins are purchased from the \u00a0 Bitcoin Exchange;<\/p>\n

>\u00a0 Indexed Cost (IC) = Cost*Index No of Sale Yr\/Index No of Purchase Yr<\/p>\n

>\u00a0 Sale Price (SP) = The price at which the Bitcoins are sold on Bitcoin \u00a0 Exchange<\/p>\n

>\u00a0 Income Tax on Capital Gains from sale of Bitcoin has to be paid as \u00a0 below:-<\/p>\n\n\n\n\n\n
Period of Holding<\/b> BITCOIN<\/b><\/td>\nTreatment<\/b><\/td>\nTaxable Value (TV)<\/b><\/td>\nRate of Income Tax<\/b><\/td>\n<\/tr>\n
Upto 36 Months<\/td>\nShort Term Capital Asset<\/td>\nTV = SP \u2013 CP<\/td>\nRate as applicable on other Incomes of the Assessee on TV<\/td>\n<\/tr>\n
More than 36 Months<\/td>\nLong Term Capital Asset<\/td>\nTV = SP – IC<\/td>\n20% of Taxable Value (TV)<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Accounting Treatment B <\/b><\/span>: Sale & Purchase of BITCOIN is the Business of the <\/span>Assessee<\/span><\/p>\n

>\u00a0 BITCOINS are Stock in Trade for the Assessee;<\/p>\n

>\u00a0 Cost Price (CP) = The cost at which the Bitcoins are purchased from the \u00a0 Bitcoin Exchange;<\/p>\n

>\u00a0 Business Expenses (BE) = All direct & indirect expenses related to \u00a0 business of the assessee including Salaries, Rent, Electricity, \u00a0 Depreciation etc shall be considered as Business Expenses;<\/p>\n

>\u00a0 Sale Price (SP) = The price at which the Bitcoins are sold on Bitcoin \u00a0 Exchange;<\/p>\n

>\u00a0 Net Profit = SP \u2013 CP – BE<\/p>\n

>\u00a0 Income Tax = Net Profit * Applicable Rate (Slab) of IT on Assessee<\/p>\n

 <\/p>\n

SOURCE 3 : RECEIVED AGAINST SALE OF GOODS & SERVICES<\/b><\/p>\n

\u00a0 <\/b>> \u00a0 <\/b>Bitcoins will be treated as consideration received against sale\/ supply in \u00a0 lieu of Money;<\/p>\n

>\u00a0 Any profit generated on (a) Sale of Goods and Services and (b) \u00a0 subsequent Sale of BITCOINS, will be treated as Business Income of the \u00a0 Assessee;<\/p>\n

>\u00a0 Income Tax will be payable on the profits at the Applicable Rate (Slab) of \u00a0 Income Tax on the Assessee.<\/p>\n

 <\/p>\n

E)\u00a0GST LIABILITY ON SALE OF BITCOINS<\/b><\/strong><\/p>\n\n\n\n\n\n\n\n\n\n
Query<\/b> No.<\/b><\/td>\n<\/td>\nQUERY & REPLY<\/b><\/td>\n<\/tr>\n
FAQ 1<\/td>\n:<\/td>\nAre BITCOINS covered within the meaning of Supply under the GST Act?<\/td>\n<\/tr>\n
Our View<\/td>\n:<\/td>\nYes – In our view, they are treated as Supply within the meaning of Section 7 of the CGST Act, 2017 since BITCOINS are not covered under any of the below exclusions:-a)Money [as per Section 2 (75) of CGST Act, 2017];b)Securities [as per clause (h<\/i>) of section 2 of the Securities Contracts (Regulation) Act, 1956]; and<\/p>\n

c)Schedule III of the CGST Act, 2017;<\/td>\n<\/tr>\n

FAQ 2<\/td>\n:<\/td>\nAre BITCOINS Exempted, NIL Rated or Zero Rated Supply under GST?<\/td>\n<\/tr>\n
Our View<\/td>\n:<\/td>\nNo<\/td>\n<\/tr>\n
FAQ 3<\/td>\n:<\/td>\nWho is responsible to pay GST in a Transaction of GST?<\/td>\n<\/tr>\n
Our View<\/td>\n:<\/td>\nThe liability for collection & payment of GST on BITCOINS is on the Seller of BITCOINS.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n\n\n\n
FAQ 4<\/b><\/td>\n:<\/b><\/td>\nIs there any<\/b> basic exemption limit prescribed under GST that applies on Sale of BITCOINS<\/b>?<\/b><\/td>\n<\/tr>\n
Our View<\/td>\n:<\/td>\nYes – Basic exemption limit for registration u\/s 22 of CGST Act, 2017 upto a limit of Rs. 20 Lakhs (10 Lakhs in Special Category States) of Aggregate Turnover is also applicable of BITCOINS. But this limit covers global turnover of the assessee in a year, including exports & exempted turnover.<\/td>\n<\/tr>\n
FAQ 5<\/td>\n:<\/td>\nWhether BITCOINS are covered under Goods or Services?<\/td>\n<\/tr>\n
Our View<\/td>\n:<\/td>\nIn terms of Schedule II of the CGST Act 2017, development,<\/b> design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software <\/b>and temporary transfer or permitting the use or enjoyment of any intellectual property right are treated as services. <\/b>But, if a pre-developed<\/b> or pre-designed software is supplied in any medium\/storage (commonly bought off-the-shelf) or made available through the use of encryption keys, the same is treated as a supply of goods classifiable under heading 8523.<\/b>In our view, in case of first sale of <\/b>Bitcoin<\/b> after Mining, they would be treated as Service and second sale of <\/b>Bitcoin<\/b> should be treated as Goods.<\/b><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n\n\n\n
FAQ 6<\/b><\/td>\n:<\/b><\/td>\nWhat should<\/b> be the Rate of GST on BITCOINS?<\/b><\/td>\n<\/tr>\n
Our View<\/td>\n:<\/td>\nIn our view, sale of Bitcoins are liable to GST @ 18%.<\/td>\n<\/tr>\n
FAQ 7<\/td>\n:<\/td>\nIn case of default of GST, who would be held responsible:-a)The Buyer;b)The Seller; or<\/p>\n

c)The BITCOIN Exchange<\/td>\n<\/tr>\n

Our View<\/td>\n:<\/td>\nAs discussed earlier, sale of Bitcoin is not covered under RCM and hence the liability for GST on Bitcoin is on the Seller.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

NOTE \u2013 The laws related to GST and BITCOINS are both under evolution in india and we have drafted the above FAQs and Answers only for informational purpose and based on our interpretation & understanding of Law. There may be difference of opinion in the above matter and a different view may emerge on a later date. It is suggested to take a specific legal opinion before relying on the contents of above FAQs.<\/p>\n

 <\/p>\n

F)\u00a0STAND OF GOVERNMENT ON BITCOINS<\/b><\/p>\n

Taking cognisance of concerns raised at various forums from time to time on increasing use of virtual currencies (VCs) and the regulatory challenges, the Department of Economic Affairs (DEA) constituted a committee with representations from DEA, Department of Financial Services (DFS), Ministry of Home Affairs (MHA), RBI, Niti Aayog and SBI. The committee has submitted its report and it is being examined.<\/p>\n

In August, 2017 Sh. Arun Jaitley has informed the Parliament that there are no regulations governing virtual currencies, including bitcoins, in India and the RBI has not given any licence to any entity\/company to operate such currencies.<\/p>\n

During a press conference in Nov end this year (2017) the Finance Minister has reaffirmed that recommendations on Crypto Currencyies are being worked at. Further clarified the government’s position that it does not recognise Crypto Currency (bitcoin) as legal currency for now.<\/p>\n

 <\/p>\n

OUR VIEW & SUGGESTION<\/strong><\/span><\/p>\n

Who created BITCOIN Algorithm is not known. Its existing quantity and\u00a0 future generation (mining) are also logical estimates only, with no accurate assurance. The Laws and Regulations related to BITCOIN are under development and may even be applied with retrospective effect.<\/p>\n

It is suggested to properly evaluate and make proper disclosures of all transactions related to BITCOIN in your financial returns and ensure compliance of Income Tax, GST & FEMA Laws while dealing with BITCOINS.<\/p>\n

\"BITCOINS<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

A) WHAT IS A BITCOIN? BITCOIN is a Crypto-Currency that works on Distributed Ledger System or BlockChain concept, which operates on an undisclosed Algorithm and is capable of recording transactions between two parties efficiently and in a verifiable and permanent way. Key Elements of a BITCOIN are:- 1. Uses Hash Pointer as a link between …<\/p>\n

TAXATION OF BITCOINS UNDER INCOME TAX & GST IN INDIA<\/span> Read More »<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","footnotes":""},"categories":[4],"tags":[154,12,460,461,462,463,464,465,466,467,468,469,470],"class_list":["post-898","post","type-post","status-publish","format-standard","hentry","category-chartered-accountants-ca","tag-ca-in-india","tag-ca-in-jaipur","tag-government-stand-on-bitcoins","tag-gst-liability-on-bitcoins","tag-gst-on-crypto-currencies","tag-how-to-get-bitcoins","tag-income-from-bitcoin-is-capital-gain-or-business-income","tag-income-tax-laibility-on-sale-of-bitcoins","tag-income-tax-on-crypto-currencies","tag-is-barter-of-bitcoins-also-liable-to-income-tax","tag-is-bitcoin-legal-in-india","tag-is-gst-applicable-on-bitcoins","tag-what-is-a-bitcoin"],"_links":{"self":[{"href":"https:\/\/blog.ritulpatwa.com\/index.php?rest_route=\/wp\/v2\/posts\/898","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.ritulpatwa.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.ritulpatwa.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.ritulpatwa.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.ritulpatwa.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=898"}],"version-history":[{"count":8,"href":"https:\/\/blog.ritulpatwa.com\/index.php?rest_route=\/wp\/v2\/posts\/898\/revisions"}],"predecessor-version":[{"id":907,"href":"https:\/\/blog.ritulpatwa.com\/index.php?rest_route=\/wp\/v2\/posts\/898\/revisions\/907"}],"wp:attachment":[{"href":"https:\/\/blog.ritulpatwa.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=898"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.ritulpatwa.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=898"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.ritulpatwa.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=898"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}