I need to know if and what are the tax implications if I and a friend from Europe partner to do arbitrage in bitcoin.
Hi,
If you are doing trading in Bitcoin, the net profit earned will be considered as business income and you will have to pay income tax as per your slab.
If the transactions are not frequent and it's like investment thing, it will be taxed as capital gain @20% in case of long term gain(more than 36 months holding) or as per slab rate in case of short term gain.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
We are planning to arbitrage and gain from the difference in exchanges and then I need to repatriate funds back to him keeping my share once we sell in India. what are the tax implications? Since funds are coming in India through Bitcoins and going out again in Flat currency.
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.
Let me reiterate my earlier views on this issue in response to another similar query.
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 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:
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
The transactions in bitcoins can be taxed as:
1. Business income, or
2. Capital Gains
Depending upon the frequency of transactions.
Please consult a FEMA expert for issues regarding transfer of funds.
Hello,
It will be treated as business profits and chargeable as per your slab rate.
Trust this clarifies your query.
Feel free to call / get back in case of further clarifications.
Thanking You.
Regards,
Rohit R Sharma
BCOM, FCA, LLB, CERT. FAFP
Hi
Bitcoin transactions are not specifically declared as illegal in India. However, government is continuously warning the invested to stay away from it.
As far as outflow of money is concerned, you can send the money outside India under LRS upto $2.5 lacs subject to the necessary compliances.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
Hi,
Since you will be selling in India and you are a resident of India, the profits that you earn in India will be taxable in India. You will pay taxes only on your share of profits. Further, currently there is no clarity on GST on bitcoin transactions.
Regards,
Keerthiga Padmanabhan
M.Com., CA, LL.B
