Cryptocurrency is surging in popularity in India as an investment and, increasingly, a means of payment by companies for their products and services. This brings in the question of how to pay taxes on those types of transactions.
While the Reserve Bank of India (RBI) has not granted legal tender status to bitcoin and other cryptocurrencies, there is no escape from paying tax on cryptocurrency investment gains. The Indian government is planning to compartmentalise virtual currencies and their tax treatment on the basis of their use cases—payments, investment, or utility, according to the Economic Times.
“Cryptocurrency gains could happen from multiple ways such as mining, staking, farming, or conventional buying and selling,” said Edul Patel, co-founder and CEO of San Francisco-headquartered cryptocurrency trading platform Mudrex. Gains from trading digital assets could be categorized under ‘business income’, while other activities would likely fall under ‘income from other sources.’ Bringing in additional rules or amendments would needlessly burden the taxpayer, Patel said.
High-powered computers ‘mine’ bitcoin by solving complex mathematical puzzles that result in a bitcoin reward. Similarly, cryptocurrency staking provides a token reward for determining whether a transaction conforms to certain protocol requirements. Yield farming, which typically takes place using the ethereum ecosystem, involves lending out crypto assets in return for a payment.
While it’s not yet clear that the Indian government will set out a regulatory framework for virtual assets, it has provided some provisions for transparency.
In March, the Indian government made it