Taxation in India depends on the following factors:
(a) Source of income, and
(b) Residence status according to the Income Tax Act, 1961.
Typically, the source of income is where the services are provided, or where the asset from which the income is derived is located. There is no clarity on the bitcoin situation for tax purposes. Resident status under the Income Tax Act is determined based on your physical presence in India during the current fiscal year (FY) (April 1 to March 31) and the previous 10 FYs .
Depending on the number of days in India, there may be the following types of residential status in India:
(a) Resident and Ordinary Resident (ROR)
(b) Resident but not ordinary resident (RNOR)
(c) Non-resident (NR)
A natural person qualified as ROR is taxable on the total income. An RNOR qualified natural person is taxable on income derived from or received in India and income from a controlled business or profession established in India. An NR qualified natural person is only taxable on income derived from or received in India.
Income from the sale of bitcoin earned outside India and received outside India will not be taxable in India if you qualify as an NR or RNOR in India. The subsequent payment of such income will also not be taxable in India. But since the bitcoin situs issue is not an established concept, there may be a potential dispute with the tax authorities over this issue. If you qualify as a MMR, the income from the sale of bitcoin would be taxable in India.
In the absence of specific guidance from Indian tax authorities, bitcoin can be treated as an asset if purchased for investment purposes. If accepted as fixed assets, capital gains on disposal will be considered as capital gains income. The gain or loss on the sale of bitcoin will be calculated first on each bitcoin transaction and then on an aggregate basis by combining all gains and losses to produce a net number. The gain or loss will be calculated by taking the sale price of each bitcoin and subtracting its cost.
Bitcoins held for no more than 36 months will be considered short-term fixed assets (STCG) and would be taxable at the applicable slab rate, plus the surcharge and education tax. The long-term capital gain (LTCG) is taxed at 20% plus the applicable surcharge and the study tax, with the benefit of indexation.
In the event of double taxation, the applicable benefit may be explored in accordance with the provisions of the Double Taxation Avoidance Agreement between India and Singapore. We recommend that you check your Indian residency status to determine the taxation and tax reporting requirement. Also, since the legal status and taxation of bitcoin in India has not changed completely, it is advisable to seek professional advice before completing your tax return.
Could you please clarify if the amount in an NRO account can be used to make loans to a third party? Can I use this money to invest in shares of Indian limited liability companies? Are there any restrictions on how the money in these accounts can be used?
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Under foreign exchange control regulations, NRI / PIO can advance a loan against its NRO account balance to:
a. person residing in India (not being a company); Where
B. Indian company.
When you lend to a resident Indian, the following conditions must be met:
a) The loan must be without repatriation;
b) The loan amount should be debited from the NRO account of the lender;
c) The duration of the loan should not exceed 3 years;
d) The interest rate of the loan cannot be more than 2% higher than the bank rate in force;
e) The repayment (principal and interest) by the borrower should be made only to the NRO account of the lender.
When you lend to an Indian business, the following conditions must be met:
a) The Indian company must not engage in agricultural / plantation / real estate activity or trade in transferable development rights or act as a Nidhi or chit fund company;
b) The loan is made by issuing non-convertible bonds (NCDs);
c) The issue of NCDs is made by public offer;
d) The interest rate shall not exceed 3% of the applicable prime rate of the State Bank of India;
e) The duration of the loan must not be less than 3 years;
f) The loan must be without repatriation and the loan amount must be debited from the investor’s NRO account (held with an authorized dealer / authorized bank in India);
g) The repayment (i.e. principal and interest) should be made only to the NRO account of the lender.
There are general restrictions on the use of borrowed funds to conduct agricultural / plantation / real estate activities or trade in transferable development rights or act as a Nidhi or Chit fund company. In addition, these funds can only be used by the borrower for his own business (other than that mentioned in point B a) above and the construction of farm houses) and not for investment / re -ready.
In addition, under foreign exchange control regulations, NRI / PIO is permitted to purchase shares issued by an Indian company on a non-repatriation basis from funds held in its NRO account maintained with the Bank of Category 1 authorized dealer.
In addition, NRO accounts can be used for the following purposes:
a) All local payments, including payments for investments subject to regulations established by the Reserve Bank of India;
b) Remittance outside India of current income earned in India by the Account Holder after deduction of applicable taxes;
c) Transfers to other NRO accounts;
d) Settlement of fees on international credit cards issued by authorized distribution banks in India to NRIs / PIOs subject to prescribed limits for repatriation of balances held in NRO accounts.
e) Disbursement up to USD 1 million per fiscal year.
As a result, NRI / PIO may grant a loan to a person resident in India (other than a company) and an Indian company and also purchase shares of an Indian company from its NRO account subject to the conditions being met. mentioned above. However, these regulations are updated from time to time, you can contact your banker for the same.
Queries and views at [email protected]
Sonu Iyer is Tax Partner and Leader in Human Resources Consulting Services, EY India
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