Bitcoins are digital assets. It was designed to be used as a cryptocurrency. But, its price has been rising in recent days. Even though some ups and downs are fluctuating in the currency, Bitcoins are still on a rise.

In many countries, Bitcoins are widely used as a medium of exchange for buying things. People can pay through them. But, in India, you cannot pay through the Bitcoin as it is not officially recognized as a valid payment system.

Even countries like China have barred it. Yet, most of the countries see the use of cryptocurrency in this digital era to reduce usage of plastic currency. Unlike plastic currency, this can be easily stored, handled and used as a medium of exchange.

Many countries including India want to have their own cryptocurrency. RBI is also considering the option of having country’s own cryptocurrency. That’s why usage of Bitcoin for payments is not possible here.

Due to continuous surge in the price of the cryptocurrency Bitcoin, many people are trading with the currency. Several Indians are also doing this as Bitcoin trading is allowed in India. So, you can also trade this currency.

Since, Bitcoins are the latest thing, the taxation purpose for this was not mentioned and classified clearly.

However, the rules are similar to those of capital gains which are applicable for buying and selling an asset.

As per taxation rules, long term capital gains are the gains on the property which was kept for more than three years.

Indexation is allowed after which capital gains are taxed at 20 per cent. Short term gains are taxed as per the existing slab rate of the taxpayers.

So, if you buy and sell bitcoins within three years, they are treated as short term gains and you have to pay tax as per your current income tax slab. If you keep them for more than three years, you may have to pay as per the rules of long term capital gains.

Regular traders will have to show the income under “business income” whereas others will have to show the income under “income from other sources”.

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