What Are the Rules Regarding Cryptocurrency Gains?

The term “digital currency” refers to a type of payment that can be made using cryptocurrency. It is not widely accepted as payment for goods and services, unlike fiat currencies such as the Indian Rupee or the US Dollar. Bitcoin as a payment method is still in its infancy. People continue to invest in digital coins because of the promise of extremely high returns. Investors are increasingly entering the market. Aside from the market’s volatility, another source of concern for cryptocurrency investors is the taxation of cryptocurrency gains.

There is no clarity on this as of yet. In fact, cryptocurrency trading was only legalised in India in March of last year. It is not, however, regulated in any way.

On April 1, 2018, the Reserve Bank of India (RBI) issued a circular prohibiting cryptocurrency trading. The use of cryptocurrency by banks and other financial institutions was prohibited. A cryptocurrency wallet could not be linked to an investor’s bank account.

In March 2020, the Supreme Court overturned the RBI order. The court issued the order in response to a request from the Internet and Mobile Association of India (IMAI). According to members of the industry group who conducted cryptocurrency transactions among themselves, Bitcoin and Dogecoin have been banned.

As a result of the price increase, those who had previously invested in cryptocurrency were able to resume trading. Others saw an opportunity to increase the value of their wealth and followed in their footsteps. The cryptocurrency market in India is unregulated, which means it is not overseen by the country’s central bank.

Taxation

Since the trading ban was lifted in 2017, investors have been unsure how to report their profits from crypto trades. For some, the idea of not paying taxes is unappealing. Cryptocurrency is not exempt from taxation, according to IRS regulations.

When calculating the tax liability, it will be determined whether the cryptocurrency was held as currency or as an asset. Section 2(14) of the Income-Tax Act defines a capital asset. A cryptocurrency trader, on the other hand, can report profits as business income if they are made on a regular basis. If the virtual asset is held for investment purposes, it is taxed as capital gains. The amount of time the cryptocurrency was held is likely to be factored into tax calculations. Long-term capital gains are taxed if an asset is held for more than three years. If the investment was held for less than three years, short-term capital gains would apply. Mining cryptocurrency would be considered a self-generated capital asset. The sale of this property may be subject to capital gains tax.

Individuals should consult a personal tax adviser before filing returns if there are no clear guidelines from the authorities.