Taxation on Mining of Bitcoins (Cryptocurrency)


Cryptocurrencies are decentralised, virtual, or digital currencies which are neither backed by any Government nor regulated by any Central Bank (like RBI). These currencies have gained popularity as they provide anonymity and is a secure way of transacting.

Bitcoin is one of the types of cryptocurrencies and was founded in 2009 by an unknown person named Satoshi Nakamoto. Over 10 Crore Indians own cryptocurrency and this is the highest in the world[1].

Bitcoin Mining is a decentralised process of creating a new Bitcoin by solving complex mathematical puzzles using Technology. A Bitcoin Miner uses technology to validate the transactions involving Bitcoins and thereby, add blocks to the blockchain system. As a reward for the miner’s effort a fraction of a Bitcoin is earned by him.

Though we are discussing about Bitcoins in this article, the contents of the article should hold good for all types of Cryptocurrencies.


Head of Income

There are several challenges in choosing the Head of Income when it comes to Bitcoin Mining. Different school of thoughts are backing different head of income. The most popular being “Capital Gains” and “Business or Profession”

Taxability under the Head Income from Capital Gains

  1. Since the miner receives the bitcoins as a reward for his efforts it can be construed as a Self-Generated Asset, and this can qualify bitcoins to be a Capital Asset under the Income Tax Act.
  2. Self-generated capital assets are not taxable if considered as Capital Asset. Reliance can be placed on Supreme Court judgement in the case of B.C.Srinivasa Setty [1981] since self-generated Bitcoins do not have cost of acquisition.
  3. Capital Gains occur only when there is a transfer. Since, bitcoins are not considered legal tender in India, there is a challenge to prove that transfer took place.
  4. Valuation of Bitcoin mined would be another challenge since the value of skills expended by the miners cannot be valued. However, the market value of the Bitcoin on the day its rewarded can be considered. USA values based on the average value of the transactions that occurred during the day for valuation.

Taxability under the Head Income from Business & Profession

  1. CBIC is considering a proposal to treat Bitcoin mining income under the head business & profession by treating it as Supply of Service.
  2. The meaning of the term “Supply of Service” also is in consonance with the provisions of Finance Act of 2012.
  3. Consideration can be received in monetary or non-monetary terms as per the Indian Contract Act, 1872. Hence, receipt of Bitcoin in exchange of services provided by the miner can be called Consideration.
  4. The term “Income from Business and Profession” has a wide scope in comparison to “Income from Capital Gains”.


Bitcoins or any other cryptocurrency in generic sense means currency. GST is not applicable on Money or currency. However, when the bitcoins are converted to INR then it might be covered under the category of Financial Services. The commission earned by the service provider will be taxable under GST in this situation.

Further, bitcoin mining is a service provided by the miner to the secure bitcoin network and the value of bitcoin received for this service can be considered as consideration and GST @ 18% may be applied on the same. However, there are several challenges as to the place of supply and legal tender.


Hence, we can narrow down the mining income under the above 2 heads. However, one has to lookout for the changes and updates in this sphere as it might be premature to come to any decision.

Until clarity is provided in terms of notification or a provision by the Income tax department one could chose to go for Capital Gains if it’s not a regular transaction and go for Business & Profession if it’s a regular transaction.

Further, under the GST Act one has to be very careful on the possibility of applicability of GST on Bitcoin Mining.


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