TAXABILITY OF CRYPTO CURRENCY BY NIDHI JAIN

TAXABILITY OF CRYPTO CURRENCY BY NIDHI JAIN

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TAXABILITY OF CRYPTO CURRENCY BY NIDHI JAIN

 

Author NIDHI JAIN

NIDHI JAIN

 

 


 

Introduction
  • Cryptocurrency is a virtual currency based on blockchain technology, which enables a peer to peer network without the intervention of a centralized agency.
  • Cryptocurrency gained popularity with the introduction of Bitcoin by a programmer under the name Satoshi Nakatomo.
  • Cryptocurrency such as Bitcoin (BTC),Ethereum (ETH),Solana (SOL),Cardano (ADA),Dogecoin and many more .
  • Despite RBI’s consistent warning and caution about the dangers of cryptocurrency, India has the largest number of cryptocurrency users in the world.
  • In 2018, RBI prohibited all RBI regulated bodies from engaging with entities dealing with cryptocurrency.
  • However, this ban was struck down by the Supreme Court in the Internet and Mobile Association of India v RBI case, where the court held that the ban was a disproportionate measure which could be replaced with regulatory measures.
  • While this decision came as a relief to the cryptocurrency owners, the Indian government has maintained a negative stance on cryptocurrency.
  • More recently, the parliament has proposed a bill to ban cryptocurrency, along with RBI’s proposal to introduce a central bank digital currency (CBDC).
  • It is unlikely that the CBDC will replace cryptocurrency. Unlike cryptocurrency, CBDC will be a regulated fiat currency which is backed by assets.
TAXABILITY
  • In India, the power to collect taxes is given under Article 246 of The Constitution of India. Article 265 says No tax shall be levied or collected by anyone except who is given the authority of law.
  • Since the laws relating to cryptocurrency are uncertain, this paper tries to analyze tax collection of cryptocurrencies as two significant methodologies as of now predominant across the world i.e., goods and currency.
  • Income Tax can be levied on Bitcoin as in business whenever there is sale and purchase of bitcoins tax has to be paid.
  • Income Tax can be forced in two ways.
CAPITAL GAINS
Section 2(14) of the Income Tax Act defines capital asset as “Property of any kind held by an Assessee, whether or not connected with his business or profession.”
  • CASE LAWS : Ahmed GH Ariff v CWT,
JUDGEMENT  the court held that the term ‘property’ has a wide connotation, and includes   movable assets, tangible/intangible assets, incorporeal rights.
  • CASE LAW :Tata Consultancy Services v State of Andhra Pradesh,
Judgement the court held that a software would fall       under The meaning of goods under the state sales tax.
  • On the basis of above case laws we can classified crypto currency as a capital asset under the act .If investment is hold > 36 months it would be classify as a Long term capital asset .
If investment is hold <36 months it would be classify as a short term capital asset.
PGBP
Section 28 of the Income Tax Act is the charging section for income of business or profession carried on by the assessee, where Section 2(13) of the Act defines business as inclusive of “trade, commerce or manufacture or any adventure or concern of such nature”.
 Businesses or investors engaged in the trading of cryptocurrency professionally would be included under this provision.
GOODS AND SERVICE TAX
The definition of goods excludes money and securities .so,if we consider crypto currency as money ,it would be exempted from GST as a pure transaction in money does not attract GST  .
If  cryptocurrency is treated as goods ,it would mean that the supply of bitcoins is a taxable supply as a barter exchange and GST can be charged .
Here the exchange transaction is considered as a service and accordingly , commission will attract GST. Now if transaction happens through an agent ,then there are two transaction
  1. Between supplier and recipient
  2. Between the agent and supplier
Both will attract GST .
GST will be charged on the commissions or margins that bitcoin exchanges earn from users as it is considered supply of service .
Hence they must register on the  GST Portal as per the law .
Trading in crypto can attract GST at 18 %.
CONCLUSION
  • Crypto Currencies are now fast growing digital currencies
  • . The Government of India has made regulations with various bills from Ban to Regularise.
  • RBI, in 2018, had banned banks and other financial institutions, from facilitating transactions on Crypto-currencies.
  • But in 2020, The Supreme Court of India, reversed the above order, and allowed trading of virtual currencies like Bit Coins.
  • It is mandatory to disclose the amount of crypto currencies held by companies in their Balance Sheet.
Currently there is no Provision for Crypto Currencies in the Income Tax Act 1961, but it would be made clear on taxation aspect, in the near future and an Act promugulating on taxation of Crypto Currencies will be coming to exist once the above bill passed in the parliament.

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