With the increasing popularity of cryptocurrency around the world and the unprecedented growth of Bitcoin in the year of 2017, people looked for opportunities to coup out some money for themselves. The trend has been the same for India with new cryptocurrency exchanges and the flood from new users to get themselves registered to trade and invest cryptocurrencies.
Whether you are a trader or investor, the ultimate aim has been to make money from this new “Blockchain Industry”. However, with the upcoming deadline of Income Tax Return (“ITR”) filing, people are in dilemma whether they are a trader who earned income from buy/selling of crypto currencies or an investor that HODL the coin and sold when the price of the coin was its peak.
The difference between the two has significant implications as the investor will be liable for capital gain/loss and a trader will be liable to pay taxes under Business Income from Speculative Businesses.
As per the Income Tax Act 1961 (“Act”), capital asset include any asset or property held by the assesse whether connected to to his business or profession, but in order to determine who is an investor and who is a trader, the fact-based and intention of the assesse while dealing in cryptocurrencies has to be taken into consideration.
An investor will invest in a particular asset with an intention of gaining dividends and to sell the particular asset after a period of time to have capital gain, whether a short term gain or long term gain as stipulated under section 111A and 112 of the Act, respectively.
However, a trader shall consider its assets as a stock in trade with the intention to buy/sell the asset on an active market as per the asset’s price movements.
In deciding whether the assesse is an investor or trader the following parameters has to be taken into consideration:
Whether the assesse has the intention to build his portfolio by investing in assets or to gain as part of business income and the complete records of buying/selling of assets is maintained by the assesse.
The amount or the volume of sale / purchase also need to be taken into consideration as trader will generally trade with high volume.
The holding period of the asset need to be taken into consideration as the trader won’t hold the asset for a longer period of time.
Intention of the investor or trader is also a deciding factor as the investor will hold the asset for future price appreciation and periodic dividends/airdrops.
Written By,
C.A. Mohit Garg
CA,CS
