The Reserve Bank of India (RBI) has yet to issue bitcoin and other cryptocurrencies' legal money status. However, the rapid growth of cryptocurrency trading platforms in India is enough to show that the number of Indians investing in virtual currency is increasing. There must be an income tax obligation when there is an investment, but because there are no clear income tax regulations in place for bitcoins and other cryptocurrencies, it is not advised to avoid paying income tax on cryptocurrency investment profits.

Are Cryptocurrency Profits Taxable?

Taxation on cryptocurrencies should be based on the nature of the investment, whether it is held in the form of money or assets, according to standard income tax principles. Profits from cryptocurrency sales can be taxed as business income if they are exchanged regularly, or as capital gains if they are retained for investment.

It should be noted, however, that if the profit is deemed business income, it can be taxed at the appropriate income tax slab rates, but if it is retained for investment purposes, it can be taxed at the same rate as a tax gain in the form of capital gains. Tax agencies all around the globe have been attempting to define taxation laws for cryptocurrencies. Even though cryptocurrencies are not listed in the Indian income tax statute and no regulations have yet been established, you must declare them and pay tax on them.

The Managing Director of the Sebi-registered income tax solution business went on to explain the capital gain tax paid on bitcoin profits, saying, "If taxpayers utilised their investments in between three years, then short-term capital gains according to the relevant income tax slabs will be applicable. However, if the redemption happens post-3 years of investment, then it can be treated as long-term capital gain and can be taxed at 20 per cent with indexation benefit."

What is the Nature of Cryptocurrency Trading?

Long-term capital gains (LTCG) are taxed on profits held for 36 months or longer, whereas short-term capital gains are taxed on earnings held for less than 36 months (STCG). However, if the transactions are large and frequent, the taxpayer may be considered to be trading in cryptocurrency. The proceeds from the selling of cryptocurrency would be taxed as business income in this scenario.

When a taxpayer conducts a large number of transactions but does not plan to keep the assets for the long term, the question of whether the activity should be classified as a business emerges. This could be assessed on a case-by-case basis. Considering crypto trading as a commercial activity necessitates reporting and claiming the costs associated with it.

A question about GST application may arise if the turnover exceeds a certain level. The tax authorities have yet to resolve some of these concerns. Another need to clarify is whether losses incurred from the sale of crypto assets can be set off or put forward.

Expectations from a Taxpayer

To commence, make sure you're keeping accurate records of all your transactions. Second, make sure that these assets are unregulated in India, which means that holding or dealing with them carries significant risk. If you have earned an income, however, you must pay taxes. Seek the advice of a professional who can assist you. You may have developed a self-generated asset if you are a miner. Miners also invest a significant amount of time and money in the development of these assets.