Treatment of bitcoin in accounting books

As far as the accounting entries on purchases and sales of bitcoins from Individual / Firm / Companies (hereinafter referred as Person) perspective is concerned, the same shall be as under:

A. In the case of trading business

If the person is in the regular buying and selling of bitcoins (say weekly 5 transactions or more), then in that eventuality, the gain from sale of bitcoins will be a business income and the loss would be a business loss. The accounting entries for such transaction is as under:

1. In the case of purchase of bitcoins

- Purchase of bitcoins A/c Dr.
 To Party (Zebpay) A/c

- Party A/c Dr.
 To Bank A/c

2. In the case of sales of bitcoins

- Party (Zebpay) A/c Dr.
To Sale of bitcoins A/c

- Bank A/c Dr.
To Party A/c

Here, if the turnover (sales) of the person exceeds Rs. 1 crore, then it may be subject to tax audit as per the provisions of Section 44AB of the Income Tax Act, 1961.

B. In the case of investments

In this case, the person is buying or selling bitcoins occasionally, then it would be considered as purchase / sale of investments which would be subject to long term or short term capital gain or long term or short term capital loss. The accounting entries for such transaction is as under:

1. In the case of purchase of bitcoins

- Investments A/c Dr.
To Party (Zebpay) A/c

- Party A/c Dr.
 To Bank A/c

2. In the case of sales of bitcoins

- Party (Zebpay) A/c Dr.
To Investments A/c

- Bank A/c Dr.
To Party A/c

In this case, the short term gain shall be subject to 15% income tax and long term gain shall be subject to 20% income tax.

Disclaimer: This is an opinion based on our discussions with our CAs. This should not be considered as legal advice. We suggest that you take the final opinion of your CA.

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