Investment in bitcoin may be treated as capital asset
I was an NRI living in Singapore and I returned in August 2017. I have bitcoins worth Rs3.2 lakh that I had bought in September 2016 for Rs35,000 in Singapore. I am planning to sell these. What will be my tax liability? What will be my tax liability? How should I file it?
—Shekhar Mahapatra Typically, source of income lies where the services are performed, or where the asset from which the income arises is located. There is no clarity on situs of bitcoin for tax purposes. Residential status under the income-tax law is determined based on your physical presence in India in the current financial year (FY) (1st April to 31st March) and preceding 10 FYS.
An individual qualifying as ROR is taxable on global income. An individual qualifying as RNOR is taxable on income sourced from or received in India and income which is derived from a business controlled in or a profession set up in India. An individual qualifying as NR is taxable only on income sourced from or received in India. Income from sale of bitcoins earned outside India and received outside India will not be taxable in India if you qualify as NR or an RNOR in India. Subsequent remittance of the said income will also not be taxable in India. But since the issue of situs of bitcoins is not a settled concept, there can be possible litigation with the tax authorities on this issue. In case you qualify as an ROR, the income from sale of bitcoins would be taxable in India.
In the absence of specific guidelines by the income tax authorities in India, bitcoins may be treated as a capital asset if they are purchased for the purpose of investment. If they are accepted as capital assets, any gains arising on sale will be considered income under the head capital gains. Gain or loss on sale of bitcoins will be calculated first on each bitcoin transaction, then on an aggregate basis by combining all gains and losses to produce a net figure. Gain or loss will be computed by taking the sale price of each bitcoin and subtracting its cost. Bitcoins held for not more than 36 months will be considered short-term capital assets (STCG), and would be taxable at your applicable slab rates plus surcharge and education cess. Long-term capital gain (LTCG) is taxed at 20% plus applicable surcharge and education cess, with the benefit of indexation.
In case of double taxation, applicable benefit may be explored as per the provisions of Double Taxation Avoidance Agreement between India and Singapore. Also, since legal status and taxation of bitcoins in India has not fully evolved, obtain professional advice before filing your tax return.
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