In 2008, the concept of blockchain was introduced as part of a proposal for bitcoin, a virtual currency system. Bitcoin has been the first application based on the concept of blockchain. For an up-close account on Virtual Currency, you may read our earlier article. There have been various other cryptocurrencies that have come into existence such as Litecoin, Ethereum, Dash, Ripple, Dogecoin, etc., Over the last few years, bitcoins and other cryptocurrencies have been gaining a high amount of traction from a trading an investing standpoint. This has spiked the interests of investors of all age profiles due to the sudden increase in value.
Governments across the globe have been working overtime to set up rules of taxation for the gains on Cryptocurrencies as the number of investors and the quantum of investments in cryptocurrencies has increased rapidly. The cryptocurrency transactions per se cannot be regulated since there is no central bank or other agency monitoring its use. However, it is another form of income and does have tax implications. More and more tax jurisdictions are coming up with rules for taxing virtual wealth. In October 2019, the IRS issued a new Revenue Ruling – 2019-24 that deals with virtual currencies and provides guidance on the treatment of specific events associated with cryptocurrencies.
In India, with the latest Supreme Court ruling, cryptocurrencies have got a new lease of life. Before the ruling of the Supreme Court, cryptocurrencies were prohibited by the Reserve Bank of India (RBI). This is mainly due to the fact that cryptocurrencies are not like our regular currency where they can be controlled, and the transactions are anonymous. This may potentially lead to laundering and evasion of taxes. On 6th April 2018, the RBI issued a circular banning the trade of virtual currencies. The Supreme Court has quashed this circular issued by the RBI. Although RBI has not recognized bitcoin or any other cryptocurrency as a legal tender, there are no clear rules and guidelines defining the taxability of cryptocurrencies.
With several examples of people having earned millions in cryptocurrencies, the Centre is contemplating bringing the investors under the tax regime. The Central Board of Direct Taxes (CBDT) has already clarified that any gains arising out of the sale of cryptocurrency are taxable. But the Act does not specify clearly how the gains are to be taxed. Countries such as the UK and the USA have clearly specified the treatment and the classification of gains arising out of the sale of cryptocurrency. The Ministry of Finance is readying proposed legislation on Cryptocurrency. This will provide us with more guidance on the tax and other implications.
In common parlance, the taxation on cryptocurrencies would depend on the nature of the investment. The treatment would vary depending on whether the virtual currency is held in the form of cash or in the form of assets. This is to be discussed in detail and addressed on a case-to-case basis. The treatment may also vary depending on the residential status of the individual.
The NRI Taxation wing of GKM has supported more than 20000+ individuals with US and India Tax filings and DTAA Advisory. For more information, please visit our website www.gkmtax.in or contact us at info@gkmtax.com
