India mulls tax on crypto trading as Bitcoin hits $28,599.99

The Indian government is exploring the option of imposing a transaction tax on Bitcoin, a move that will give more legitimacy to the cryptocurrency subsequent to Supreme Court’s ruling in March to quash the Reserve Bank of India’s ban on cryptocurrencies.

The world's most popular cryptocurrency hit a record $28,599.99 on Wednesday, taking gains this year past 295 per cent amid heightened interest from bigger investors.

New Delhi’s move to impose a transaction tax on cryptocurrency is aimed at generating around $1 billion in additional revenue a year.

India’s Central Economic Intelligence Bureau (CEIB), an arm of the finance ministry, has proposed imposing an 18 per cent goods and services tax (GST) on bitcoin transactions.

The CEIB recently conducted a study on levying GST on cryptocurrencies. The bureau told the Central Board of Indirect Taxes & Customs (CBIC) that the government could gain $981 million annually by taxing Bitcoin trading.

According to Amit Maheshwari, a partner at tax and consulting firm AMK Global, Bitcoin’s active trading would be treated as a speculative business and attract normal tax rates. In contrast, authorities may treat one-off or infrequent transactions as capital gains, long-term or short-term, depending on the holding period, and levy a concessional rate of capital gains.

Analysts said further clarity on the tax and regulation front may bring more investor participation. While the Indian government does not consider bitcoin legal tender, holding cryptocurrencies is not necessarily illegal or banned.

Bitcoin has increasingly seen demand from larger US investors in particular, attracted by its perceived inflation-hedging qualities and potential for quick gains, as well as expectations it would become a mainstream payments method.

Investors said limited supply of Bitcoin — produced by so-called “mining” computers that validate blocks of transactions by competing to solve mathematical puzzles - has helped power upward moves over recent days.

Many recent entrants to the market are holding onto positions, they said.

“The supply side to the bitcoin market will remain tight,” said Jacob Skaaning of crypto hedge fund ARK36.

The latest gains took bitcoin’s market capitalisation past $518 billion, according to industry website CoinMarketCap.

Other major cryptocurrencies, which tend to move in tandem with bitcoin, were flat. Ethereum, the second biggest, was down 0.4 per cent, on track for a 2020 gain of around 465 per cent.

— issacjohn@khaleejtimes.com

— With inputs from agencies