Investors in India are finding that they may be subject to paying tax after selling their bitcoin following the Reserve Bank of India’s (RBI) warning against trading in them.

Earlier this month, the country’s central bank issued its second warning to the public cautioning them about digital currencies, in particular, bitcoin. In a public notice, on the 5 December, the RBI warned adopters about the ‘potential economic, financial, operational, legal, customer protection and security related risks’ regarding the use of virtual currencies.

As a result, a number of investors have started to sell their coins, one of which is S Shridhar, an engineer working at an American IT company in Bengaluru reports The Economic Times. Heeding the notice from the RBI, Shridhar sold 20 bitcoins on Friday, an amount worth 21.8 million rupees, at the time of publishing. However, he was then told by his tax advisor that he may have to pay tax seeing as Shridhar transferred his return from the trade to his bank account.

Depending on whether the digital currency is considered as a business income or a capital gain, experts claim that returns from the cryptocurrency could attract as much as 20-30 percent tax.

Jeenendra Bhandari, partner at tax advisory firm MGB, explained:

In case anyone sells bitcoins, the gains would definitely attract taxation, depending on his intent to categorise the gains either as business income or capital gains. There is no specific amendment to income tax law required to determine bitcoin taxability.

Not only that, but tax departments could consider trade from selling the digital currency as business income, treating it as speculative business and attracting regular tax rates, according to Amit Maheshwari, partner at Ashok Maheshwary & Associates LLP Chartered Accountants, adding:

If anyone is selling bitcoins and the money comes in his bank account, this would attract either long-term capital gain tax or short-term capital gain tax, depending on the holding period.

Maheshwari said that long-term capital gain at 20 percent could be levied if the coins were held for at least 36 months. Short-term gains would see 30 percent added. Due to the RBI’s warning there has been a rush in India to sell their coins. This comes at a time when India’s retailers are quickly adopting bitcoin, despite soaring premiums.

Yet, even though bitcoin isn’t considered illegal in India, it isn’t legal either. It is this ambiguity that has seen India’s Supreme Court call on the government to issue clear guidelines regarding the use to ‘regulate the flow of bitcoin’ in the country.

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