Bitcoin is a cryptocurrency invented by an unknown group of persons. You may buy or sell bitcoins on a bitcoin exchange. Any bank or government does not control the currency. Blockchain is the core technology behind bitcoin and other cryptocurrencies. It is a public ledger of information that records all bitcoin transactions.
Bitcoin mining is done through specialised computers, and miners process the bitcoin transactions to keep the network secure. Miners earn transaction fees and bitcoins in exchange for mining bitcoins. The entrepreneurs raise funds for bitcoins and other currencies through the initial coin offering or ICO. It is similar to the initial public offer or IPO where a company offers shares to the general public for the first time.
RBI banned cryptocurrencies in the year 2018 after several frauds. However, in March 2020 cryptocurrencies were declared legal in India. The government is holding talks with different ministries to bring in a law to ban cryptocurrencies.
Tax on Bitcoin in India
With the ‘rags to riches’ stories circulating around cryptocurrencies, especially bitcoins, the Centre is seriously contemplating bringing the investors under the tax regime. The Central Board of Direct Taxes (CBDT) has already announced that people who made money out of the bitcoin must declare and pay the relevant tax.
The department is all set to send legal notices to those who refuse to comply with the laws. The government is still inclined towards making bitcoin completely illegal and is awaiting suggestions from the committee appointed for this purpose. Even if it may not be abolished altogether, there will be some kind of a regulator and set tax rate slabs.
What is a Bitcoin Tax Calculator?
A bitcoin tax calculator is a utility tool that calculates the short-term capital gains tax, and the long-term capital gains tax on profit from bitcoins. The holding period impacts the taxes on bitcoins. If you hold the bitcoins for less than three years, the gains are called short-term capital gains. The gains would be clubbed with taxable income and you are taxed as per your income tax bracket.
If you hold the bitcoins for three years or more, the gains are long-term capital gains. You have to pay long-term capital gains tax at 20% with the benefit of indexation. The bitcoin tax calculator consists of a formula box, where you enter the nature of the transaction, purchase and sale price of the bitcoin, holding period, and the transaction fees. The calculator shows you the short-term capital gains tax or the long-term capital gains tax depending on the holding period.
How Does Bitcoin Tax Calculators Work?
The bitcoin tax calculator shows the capital gains tax on bitcoins depending on the holding period. You must enter the purchase price and the sale price of the bitcoin along with the holding period.
For example, you have bought some bitcoin units in August 2017 for Rs 50,000 and sold them for Rs 1,00,000 in November 2018. The holding period is under three years. The gains are short-term capital gains of Rs 1,00,000 – Rs 50,000 = Rs 50,000. It is added to your taxable salary and you are taxed as per your income tax bracket.
Suppose you had purchased some bitcoin units in January 2015 for Rs 1,00,000 and sold them in May 2018 for Rs 5,00,000. The holding period is above three years. The gains are called long-term capital gains and are taxed at 20% with indexation benefit.
The long-term capital gains are:
Original cost of acquisition = Rs 1,00,000
CII (Cost of Inflation Index) in the year of purchase = Rs 240
CII (Cost of Inflation Index) in the year of sale = Rs 280
You have the indexed cost of acquisition = CII in the year of sale* (purchase price of the asset) / CII in the year of purchase.
Financial YearCost Inflation Index (Rs)
Indexed cost of acquisition = 280 * (1,00,000) / 240 = Rs 1,16,666.
The sale price of the asset = Rs 5,00,000
Long-term capital gains = The sale price of the asset – The indexed cost of acquisition.
Long-term capital gains = Rs 5,00,000 – Rs 1,16,666 = Rs 3,83,333.
You have long-term capital gains at 20% = Rs 3,83,333 *0.2 = Rs 76,667.
How to Use the ClearTax Bitcoin Tax Calculator?
The ClearTax Bitcoin Tax Calculator shows the short-term capital gains and long-term capital gains in seconds. To calculate the short-term capital gains:
You must select the nature of the acquisition.
Choose the holding period as less than three years or more than three years.
Enter the sale price of the asset.
You then enter the purchase price of the asset.
Enter the transfer expenses if any.
The ClearTax Bitcoin Tax Calculator shows you the short-term capital gains, the short-term capital gains tax, or the long-term capital gains and the long-term capital gains tax depending on the holding period of the bitcoin units.
Benefits of ClearTax Bitcoin Tax Calculator
You can calculate short-term and long-term capital gains on bitcoin transactions in seconds.
The ClearTax Bitcoin Tax Calculator is easy to use and may be used from the comfort of your home or anywhere.
You get a real-time picture of the taxes you owe to the government when buying and selling bitcoins.
FAQs on ClearTax Bitcoin Tax Calculator
How does the ClearTax Bitcoin Tax Calculator help me?
Well, the ClearTax BitcoinTax Calculator calculates the taxes on short-term and long-term capital gains in seconds. You may determine the taxes on capital gains from the comfort of your home or anywhere.
Why does the ClearTax Bitcoin Calculator ask for the holding period on bitcoins?
The ClearTax Bitcoin Calculator calculates the capital gains on bitcoins based on the holding period. If the holding period is under three years, you incur short-term capital gains and are taxed as per requisite rules. However, if you enter a holding period that is greater than three years, then your capital gains are taxed as long-term capital gains. You have to pay taxes accordingly.