By Guest Author.
The recent warning from Reserve Bank of India (RBI) has made the bitcoin traders and enthusiasts in India concerned. RBI has asked the Indian citizens to be cautious about bitcoin trading, and mentions that such trading will be at their own risk. RBI has stressed that they don’t control bitcoin or bitcoin trading, like they do for traditional banking and trading systems.
RBI also warns about the potential fall in the value of this currency. That isn’t the only issue the Indian bitcoin traders are dealing with, though, as S Sridhar, a 36-years-old engineer working in an American IT company in Bengaluru, found out from his tax adviser. Sridhar sold about 20 bitcoins last Friday, and transferred the return to his bank account. His tax adviser is now trying to figure out whether this will be taxed, and at what tax rate. Sridhar is just one among many in India rushing to sell their bitcoin holdings.
There is also a need of clarity on the treatment of bitcoin returns whiling filing income tax returns. Experts are of the opinion that returns from bitcoin would attract 20-30% tax. Some experts feel that there is no need to amend income tax law. According to them, it’s clear that gain from selling bitcoin will definitely attract taxation. Jeenendra Bhandari, partner at tax advisory firm MGB, says that the tax would depend on the categorization of the return, i.e. business income or capital gains.
Tax experts feel that the Indian IT department could treat the money from selling bitcoins as business income. Amit Maheshwari, partner at Ashok Maheshwary & Associates LLP Chartered Accountants, believes that active bitcoin trading will be considered speculative business, thus attracting regular tax rates.
The IT department officers could also conceivably treat bitcoin returns as long-term or short-term capital gain. If the individual concerned had held the bitcoin for more than 36 months, it will be considered as long-term capital gain, attracting 20% tax rate. Holding bitcoin for shorter period will attract short-term capital gain tax at the rate of 30%.
Rush to sell bitcoins, triggered by the risk factors:
Saurabh Agarwal, cofounder of Ahmedabad, Gujarat based bitcoin exchange, Zebpay, informs that for the past two to three days, many Indians sold their bitcoins.
The rush to sell followed the most recent warning from RBI that the central bank has not authorized anyone to trade in bitcoins, and investors will need to manage their own risk. This happened to be the third RBI warning, the earlier ones being issued in 2013, and February 2017, respectively.
Incidentally, RBI is not the only one warning about bitcoin. Legendary investor Warren Buffet, and Jamie Demon of JP Morgan had also warned that bitcoin is a bubble. Fluctuation in bitcoin value can be seen from the fact that in early December, the value shot up to US $ 16,000 from US $ 1,000 in January.
Indian citizens also have an advance tax payment deadline on 15th December, since, starting 1st July 2017, Goods and Service Tax (GST), the one indirect tax for the whole nation making India one unified common market, has come into effect. This is an added factor to consider for the bitcoin investors and their tax advisors, since whether bitcoin trading will attract GST is not known. Tax experts like Bhandari of MGB feel that there will not be GST on buying bitcoins, since essentially this is buying forex, however the trading transaction fee will fall under the ambit of GST.
While some tax advisors have advised their clients not to transfer their bitcoin wallet money to their bank account after sell, that is, at best, a temporary solution. After 3 months the money will automatically be transferred.
Some new demand for bitcoin has been noticed, though. Agarwal of Zebpay has reported that since last Friday, a new set of buyers are active on the exchange. Perhaps, not everyone is concerned, after all.