Arbitrage bitcoin trading

On entire sale proceeds, as your Cost of acquisition is NIL.

Firstly, Bitcoins are not legal tender in India as per latest Budget of Arun Jaitely.

Further, the Stock exchanges are different in your case, which can create an issue.

Thanks,

Sourabh Pahuja

There is no illegality as of now for trading in cryptocurrency in India. However, arbitrage arises when you are buying/selling cryptocurrency abroad and selling/buying them in India to get the benefit of changes in the rates. It implies that there may be usage of foreign exchange.

There is no specific provision prohibiting foreign exchange transactions for the purpose of bitcoin dealings. Under the Liberalised Remittance Scheme (LRS) of the RBI, a resident individual can remit upto 2 L US$ per FY and he will be free to acquire and hold immovable property or shares, units of Mutual Funds or any other asset outside India and will also be able to open and maintain and hold foreign currency accounts with a bank outside India for making remittances under the scheme. You may refer to the following link: https://seller.currencykart.com/assets/uploads/rbi-rule.pdf

Bitcoins cannot be used as a currency under the present regulations as the definition of currency does not include Virtual Currencies. Thus you are acquiring bitcoins as moveable asset, termed as "Crypto Asset" (in the Budget 2018) and not as a currency that can be used as a legal tender for the monetary transactions. However, as there is spurt in the trading of Bitcoins, RBI has been cautioning the investors about the risks involved. You may also like to go through the latest advisory of the RBI at the following link:

https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=42462

You may also go through an interesting speech by the Deputy Governor of RBI at the following link:

https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1036

Now that the Finance Minister also indicated that virtual currencies are not legal tenders, I expect that there may be restrictions on buying /selling bitcoins in the near future to protect the interests of the gullible investors.

The increased volumes in the trading in bitcoins has already attracted the attention of the regulators and the Income Tax Dept in India has issued to notices to thousands of traders. You may be interested in knowing more about it at the following link:

http://www.livemint.com/Money/SsOki0ufm2dCaA01e9WjPO/Bitcoin-investors-in-India-served-income-tax-notices-as-trad.html

As long as the sources of the transactions are genuine and incomes are properly declared, you will not have problem but you will need to explain the transactions. So keep proper records of the transactions for submission to the Income Tax Dept, if required.

As regards the income tax, as the arbitrage transactions are likely to be regular operations, the income on such arbitrage transactions will be treated as business income and assessed accordingly.

Hi,

You have mentioned little information regarding your nature of transactions.

However, please note that with limited information you explained, the movement of funds from and outside the country are not legible means of movement of funds under FEMA Laws of India. Hence, forget about taxation, what you said is a clear case of violation of FEMA provisions.

Secondly, if you earn anything out of the above said transactions, any income generated from the same shall be treated as income from illegal means i.e. because FEMA provisions were not followed. Hence you will be liable under PMLA also. It will be considered as proceeds of illegal income.

Please note that Govt. of India has not yet given any legible face to bitcoin trading in India and whosoever is doing it as of now will land into some trouble at some point of time surely. Finance Minister has clarified the same in his budget speech on 01.02.2018. Please go through the same text regarding trading of cryptocurrency.

Regards

The bigger concern than tax is how would you transfer the money to your friend in US as FEMA doen't allow use/ transfer of US Dollars for such purposes. You need specific permission of RBI which is impossible to obtain in this case. So its advisable to avoid such transaction.

For your first question, you will be taxed on the total proceeds as cost of acquisition for you is nil.

However, you can keep proper records and show that the costs have been transferred to your friend and then the tax would only be on the profits.

Having said that, this is not a simple transaction and would involve FEMA restrictions as well as the cloud around illegality of the cryptocurrencies. Even in the budget, it has been stated that the cryptocurrencies are not legal tender and government will take all steps and take action against all illegal transactions. The IT department has also sent notices to all individuals who have transacted in cryptocurrencies in the last financial.

With all these risks and issues, you may want to rethink on your decision to trade in cryptocurrencies.

Hope this explains.

Hi,

As such, Bitcoin trading is no illegal in India. However, in order to send money outside India you need to comply with FEMA regulations and I am not sure whether FEMA permits the money to be sent out if India for this purpose or not.

If the money can be sent out, then you will have to pay tax only on the profit part as your business income.

Hi

Firstly, please be aware that bitcoins trading is neither legal nor illegal in India. Till proper rules about this are framed up, all suggestions are on assumption basis.

The income derived from such trading shall be taxed as business income. The profit element shall be taxable provided you have enough proofs to prove the genuineness of incurred costs.

Since you'll be transferring funds abroad, please consult a FEMA expert for guidelines.

Bitcoin taxability is an ambiguous matter in India. Recently tax sleuths have sent the notices to various person for taxing the gains earned by them on the Bitcoin Trading. This came in development when they got the data of Traders on the Bitcoin exchanges in India.

However by the principles of Indian Taxation System there can be two implications-

1. If it is treated as Capital Asset then you will get the benefit of Indexation (In case the asset is hold more than 1 year / 3 year) otherwise , it will be taxed as Net Sale price- Cost of purchase.

2. If it is treated as Income from other sources- In this case also you will get the deduction for expenditure incurred for getting the Income. Therefore in this case also Gain will be Sale Price- Cost of Purchase- any other cost incidental for realization of sale proceeds.

Hope this solves your concern!!!

Dear Sir,

You will taxed in India and on the profit element only.

You can buy them directly keeping in view the cost involved.

Thanks