• Bitcoin Arbitrage

Hi,

I want to know if crypto arbitrage is illegal in India or not i.e.if  government can take any action on someone doing bitcoin arbitrage or not. Even if he is paying all taxes on earnings to Income Tax as per provisions.

Thanks
Asked 6 years ago in Income Tax

Hi

As of now, there is nothing in the law, which makes Bitcoin arbitrage illegal in India.

Further, if your using foreign currency to buy Bitcoin, it is necessary for your to comply with FEMA requirements.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

There is no illegality as of now for trading in cryptocurrency in India. However, arbitrage arises when you are buying/selling cryptocurrency abroad and selling/buying them in India to get the benefit of changes in the rates. It implies that there may be usage of foreign exchange.

Let me reiterate my earlier views on this issue in response to another similar query.

There is no specific provision prohibiting foreign exchange transactions for the purpose of bitcoin dealings. Under the Liberalised Remittance Scheme (LRS) of the RBI, a resident individual can remit upto 2 L US$ per FY and he will be free to acquire and hold immovable property or shares, units of Mutual Funds or any other asset outside India and will also be able to open and maintain and hold foreign currency accounts with a bank outside India for making remittances under the scheme. You may refer to the following link: https://seller.currencykart.com/assets/uploads/rbi-rule.pdf

Bitcoins cannot be used as a currency under the present regulations as the definition of currency does not include Virtual Currencies. Thus you are acquiring bitcoins as moveable asset and not as a currency that can be used as a legal tender for the monetary transactions. However, as there is spurt in the trading of Bitcoins, RBI has been cautioning the investors about the risks involved. You may also like to go through the latest advisory of the RBI at the following link:

https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=42462

You may also go through an interesting speech by the Deputy Governor of RBI at the following link:

https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1036

Now that the Finance Minister also indicated that virtual currencies are not legal tenders, I expect that there may be restrictions on buying /selling bitcoins in the near future to protect the interests of the gullible investors.

B Vijaya Kumar
CA, Hyderabad
1001 Answers
124 Consultations

5.0 on 5.0

As regards the use of foreign exchange to buy cryptocurrency, I suggest you to read my previous reply and follow the links provided therein.

As regards the income tax, as the arbitrage transactions are likely to be regular operations, the income on such arbitrage transactions will be treated as business income and assessed accordingly.

B Vijaya Kumar
CA, Hyderabad
1001 Answers
124 Consultations

5.0 on 5.0

Hi,

If you are using bitcoin to buy other crypto, i believe (not sure) there should not be an issue.

The profit arising from trading of bitcoin will be your speculative business income and will be taxed as per your normal slab rate.

Even if you earn 20 lacs and pay tax on the same, there wont be any trouble from income tax department. You may receive notice but you can answer to the notice saying you have paid taxes on the same.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

Hi

Till date there is no legal framework in India in relation to bitcoins. So, you can't say whether it legal or illegal.

Also, there are no clear rules whether FEMA will apply to bitcoins or not.

Best that can be done is to pay capital gain taxes on bitcoins investment as per the Income tax act or as business income of the trading volume is big.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

Hi,

Currently there are no laws dealing with cryptocurrency. So long as you pay tax, from Income-tax perspective, you can be safe.

For tax purposes, the gain / loss which you will earn on the purchase and sale of cryptocurrency will be taken as your turnover. It will be considered as speculation business and tax will be paid accordingly.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B

Keerthiga Padmanabhan
CA, Greater Mumbai
784 Answers
27 Consultations

5.0 on 5.0

Hello,

Till the time you are paying due taxes on our profits made in India or abroad there is nothing to worry about the Income Tax Department.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, FCA, LLB, CERT. FAFP

Rohit R Sharma
CA, Mumbai
2104 Answers
95 Consultations

5.0 on 5.0

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