Do you think that while making the total computation of tax payable, is it possible for an investor to set off gains derived from holding or trading of Bitcoins against losses arising through trading in intraday stocks or commodities? Well, most of the tax gurus think that it is possible. The income tax department of India have been questioned by an array of investors lately who are planning to segregate the gains arising from Bitcoin under the heading of speculative income. Thus, it is only obvious that they shall set it off against losses of other speculative businesses to get a reduction in overall tax liability for a particular previous year.
Following the report published by Economic Times, an Indian daily last month hinting that mega bitcoin gains of investors could make them liable to about 30% of tax payment, scrutiny was launched by the income tax department on various Bitcoin exchanges. Top ones such as CoinSecure, Zebpay and Unocoin had to open up their financial statements and much more to the tax officials in the sudden investigation carried out on 13th December 2017.
About 5 lakh notices were issued by the Income Tax department of India to HNI cryptocurrency investors seeking out answers to 28 points complied in a questionnaire format. In such a scenario, it deems fit for the investors to make use of their other speculative business for reducing the overall tax burden.
Economic Times published an article about the same where in various Tax Experts mentioned their opinion. Senior Chartered Accountant and Tax Expert Dilip Lakhani pointed out that:
“Transactions in cryptocurrencies are not settled by any physical delivery of an underlying asset. So, the profit/loss incurred due to trading in cryptocurrencies could be treated as speculation business income.”
An investor based out of Surat for example holds 4.4 bitcoins which he had purchased at an average price of $15000 each from Indian exchanges. He tried selling off his holding in December and incurred a massive loss as the price of Bitcoins took a downswing during the Christmas week. Thus, he filed a reply to the query placed by Indian Income Tax authority stating his loss of 5 lakh INR. He wishes to set off this loss against the profit of 25 lakh INR earned through commodity trading in grey-market. Tax experts hold the view that set-off of similar nature might be allowed as both trading of commodities in grey market and Bitcoin trading can be segregated under the same head of speculative business income.
A senior official stated in this regard that:
“As per the Income Tax Act, legality or illegality of income may not be of any consequence for paying tax. So, speculative business income from one asset can theoretically be set off against losses made in any other asset.”
Lakhani agreed to the point saying that :
“The loss on trading in cryptocurrencies will be treated as speculation loss and cannot be adjusted against any other source of income except speculation income. The loss can be equated with Dabba trading in securities, where the settlement is done without a physical delivery.”
Speculative business income is placed under the tax slab of 30% as per current regulations. A business can be termed as speculative if a particular asset is being bought and sold regularly by its holder for gaining profit. However, all speculative businesses are not legal and might be reported by the income tax authorities to the concerned police department or enforcement directorate. With the annual tax filing date of individuals coming near with each passing day, it is high time to take a stand in regards to taxability of Bitcoin gains.
Depending on the categorisation of bitcoin gains as business income or capital gains, experts feel that they should fall within the tax blanket of 20-30%. Amit Maheshwari, Partner at Ashok Maheshwary & Associates LLP added that:
“The income tax department may consider trading of Bitcoins/other crypto currencies as capital gains or speculative income. Speculative business income would attract about 30% tax. Such speculative loss from Bitcoin or any other crypto currency cannot be adjusted against non-speculative income but can be adjusted against gains in other speculative assets.”
For setting off bitcoin losses against speculative gains, the tax payer needs to prove that it is their routine business. Thus, this opportunity can only be availed by investors who trade in bitcoins or other cryptos on a regular basis. A tax expert who have been advising Bitcoin investors regarding their future course of action stated that, “Many of those who have received tax notices are diamond, textile and commodity traders. Many of these traders were regularly settling their dues in Bitcoins or any other cryptocurrency.”
The demand for Bitcoin have increased amongst the Indian masses in the last one month since assesses do not want to let go of this opportunity for setting off Bitcoin losses against speculative business gains.
Also Read: Finance Minister Of India Says, Bitcoin Is Not A Legal Tender In India
According to the tax experts, the income earned /losses incurred by trading in cryptocurrencies such as Bitcoin can/ can be, setoff by losses incurred/income in other speculative trading.
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Tarunima Ghosh Laha is a Finance Post Grad from St. Xaviers who believes Finance is more than just Balance Sheets and Ledger creation. This filmy bookworm who believes she was a sloth in past life also nourishes a penchant of owning a private zoo someday. Equipped with a laptop and online Lexicon she is all set to give finance a glamorous makeover in the form of exciting writeups with bang on info and flashy new words.
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