Budget 2022: Cryptocurrency Taxation Clarity?

The timeline for a law to ban or regulate use of cryptocurrencies is unclear. It didn't make an appearance in the winter session of Parliament despite being on the schedule. This lack of clarity on the legal status of crypto hurts its tax treatment as well.

So far, investors in Bitcoin to Ethereum to Shiba Inu, have treated gains in cryptocurrencies as liable to capital gains tax, say experts. But does the government have a differing view? Under what circumstances would cryptocurrencies be liable to tax on business income?

Will Union Budget 2022 offer clarity?

India's income tax law has no distinct provision for taxation of cryptocurrencies. Nor has the tax department issued any formal guidance so far.

Tax experts, though, have taken one of two views.

• Cryptocurrencies are a capital asset and hence, any gain is subject to capital gains tax.

• Income earned from the sale of cryptocurrencies may also be classified as business income or as income from other sources and taxed accordingly.

So far, most individuals have reported profits on crypto trades as capital gains, experts told BloombergQuint earlier. The Revenue Department hasn't advocated an alternate tax treatment, they said.

But popularity, and hence trade volume, of cryptocurrencies have picked up only in the last couple of years, for which tax assessments are yet to happen.

More questions are likely to come up then.

Capital Gains Tax

Short-Term Capital Asset

Holding period: 36 months or less [less than 12 months for listed equity]

Tax rate: Income tax rate applicable as per income slab [15% for equity/equity mutual funds]

Long-Term Capital Asset

Holding period: Over 36 months [12 months or more for listed equity]

Tax rate: 20% [10% for listed equity/equity MF]

Unless specified otherwise, cryptocurrencies will have to be held for more than 36 months to be classified as long-term capital asset, Keyur Shah, partner and tax financial services leader at EY India, had told BloombergQuint in an earlier interview.

Business Income

In certain cases, income arising from sale of cryptocurrencies can be classified as business income, L Badri Narayanan, executive partner at Lakshmikumaran and Sridharan Attorneys, had said in an eaelier interview to BloombergQuint.

When income is generated through regular trading in cryptocurrencies, the profit/loss can be considered as "business income".

For instance, Badri explained, if there is a miner who is in the business of generating and selling cryptocurrency, for him, it's a profit/gain from a profession, which is a business income. Viewing crypto gains as business income could be applied to exchanges as well. Provided it is in the business of buying and selling cryptocurrency on a regular basis, like stock in trade, Badri added.

What about tax on speculative transactions in cryptocurrencies? And does GST apply to crypto trades?

For a detailed understanding of tax issues surrounding crypto currencies such as Bitcoin, Dogecoin read below.