Regulation and Taxation of Bitcoins in India: An Analytical Study

Srinandini Kar and Shreya Kumaria
Symbiosis Law School, Hyderabad, India

Volume III – Issue II, 2021

Bitcoins have been in talk lately due to their high prices and the rise in their exchange. Indians were attracted to bitcoins from its primary years of creation and its demand increased significantly after demonetisation. However, the non availability of crypto exchanges and other restrictions in the country have prevented the growth of investment in bitcoins.

The authors in this paper while briefly discussing the mechanism of bitcoins also highlight how they function. The authors then move on to discuss the current regulatory system of bitcoins in India. Owing to their ever changing business models and the intricate technology involved, tax regulators as well as authorities have not been able to clearly answer many issues as discussed throughout the paper. Further, the authors have discussed the taxation structure of bitcoins in India. Exchange of bitcoins may be in the form of either income or expenditure and depending of the transaction they may be taxed under the “Income tax Act” or the Central Goods and Services Act. The authors have analysed the various characteristic features of bitcoins and why their taxation structure poses great complications. Under direct taxes the author has analysed the treatment of bitcoins in two ways namely “capital gains” and as “profit and gains from business and profession”. The authors have given an overview of the taxation structure of bitcoins by focusing on both the direct as well as the indirect taxation structures. The findings of the authors will help to clearly assess the prevailing regulatory framework of bitcoins in India.

When compared to the other laws, the legislations relating to taxation must be more flexible and must continuously evolve to adapt to the new conditions in order to prevent the evasion practices. Although the future of bitcoins in India is not known, its success in the country is a possibility which demands serious thought.

Keywords: Bitcoins, regulation, taxation


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