If I convert bitcoins to INR, is there any tax problems?

Cryptocurrencies are a grey area in India and there is no clear regulation about them so far but this hasn’t deterred many Indians from trading and investing in cryptocurrencies. Earlier this summer, New York bitcoin trade analyst Chris Burniske also tweeted about how trade in INR accounted for over 10% of the global Bitcoin trade volume.

Let that sink in: one-tenth of trades in an asset class of over $120-billion market capitalisation has an India connect. This is only Bitcoins. No one has a clear estimate of what percentage of trading in altcoins (short for so-called alternate cryptocurrency, used to refer to non-Bitcoin cryptocurrencies) has roots and destination in India; altcoins today have a market cap of over $92 billion.

visit here to convert bitcoin to paypal

Filing for taxes

“Documentation is the most important aspect of taxation and accounting. Regularly extract and save the transactions data from the trading platform you are dealing/trading with,” advises Yasaswy Sarma, a cryptocurrency enthusiast and Partner at chartered accountancy firm GPRSK and Associates in Chennai.

Taxation is all about proper declaration of transactions done by the trader, whether it’s resulted in profit or loss, Sarma says. The details he asks clients to document include date of transaction, transaction ID, transaction type, quantity, prices, platform details etc.

Now before you start with filing your taxes you have to ascertain whether you are falling under business category or as capital investor.

There are generally two distinctions that can be made based on the way you trade, Sarma says. “In general, if you are trading in cryptocurrencies on a casual basis and mostly for investment purposes, your gains/losses will be considered as investments under the capital gains,” he says. “Depending upon your trading cycle, if you are more of an active trader you will be considered under the business category.”

Filing for taxes

“Documentation is the most important aspect of taxation and accounting. Regularly extract and save the transactions data from the trading platform you are dealing/trading with,” advises Yasaswy Sarma, a cryptocurrency enthusiast and Partner at chartered accountancy firm GPRSK and Associates in Chennai.

Taxation is all about proper declaration of transactions done by the trader, whether it’s resulted in profit or loss, Sarma says. The details he asks clients to document include date of transaction, transaction ID, transaction type, quantity, prices, platform details etc.

Now before you start with filing your taxes you have to ascertain whether you are falling under business category or as capital investor.

There are generally two distinctions that can be made based on the way you trade, Sarma says. “In general, if you are trading in cryptocurrencies on a casual basis and mostly for investment purposes, your gains/losses will be considered as investments under the capital gains,” he says. “Depending upon your trading cycle, if you are more of an active trader you will be considered under the business category.”

Is crypto a capital asset?

Some question the view that income from cryptocurrency trading can be declared as capital gains because they believe cryptocurrencies are not a capital asset in the first place.

According to Shailendra Kumar, founder and CEO of TaxIndiaOnline, for any kind of gain to be categorised as capital gain, the asset in consideration has to be a capital asset and cryptocurrencies don’t fall under this category. “If you are going to declare something as capital gains, first of all it has to be a capital asset. Who has declared cryptocurrency as a capital asset? You are just presuming it,” says Kumar.

If someone wants to file tax returns, the income from cryptocurrency trade should be treated as income from business, insists Kumar, given that cryptocurrencies have not been identified or acknowledged as a legitimate asset or capital asset in India so far.

“If someone is trading in cryptocurrency and wants to declare it and pay taxes, the IT Act doesn’t stop you from doing that. In that scenario it (income from cryptocurrency trade) can be treated as profit from business. So, it’s a business income,” he says.

FEMA and other Regulation

Often, cryptocurrencies bought in India are transferred to exchanges abroad by traders to transact in altcoins that are not available on Indian exchanges. In such cases, rules under the Foreign Exchange Management Act (FEMA), which details laws for civilians dealing with foreign currency, may be applicable.

Those who are trading with money that has been accounted for and paying taxes may not have to worry about these transactions. But the central bank that lays down the rules for forex transactions or the Enforcement Directorate, which keeps a hawk eye for violations of FEMA or the Prevention of Money Laundering Act, might seek clarification regarding transactions.