Bitcoins, as of now, have not been given the status of legal tender in India by the Reserve Bank of India (RBI). Hence, there are no clear rules defining taxability when it comes to bitcoins, which calls for specific clarification from the Income Tax (I-T) department.

However, experts believe that it’s not a good idea to skip paying taxes on gains made from the sale of bitcoins.

In the words of Archit Gupta, founder and CEO, ClearTax, "All incomes are liable to income tax except explicitly exempt income."

Also read:Investing in bitcoins? Keep these things in mind

This means one may be liable to pay taxes on bitcoin investments too.

According to regular income tax parlance, the tax implications on cryptocurrencies should depend on the investment's nature, whether held as a currency or held as property.

“Gain from the sale of bitcoin may be taxed as business income if traded frequently or taxed as capital gains if held for the purpose of investment. If regarded as business income, then the gains would be taxed as per the applicable slab rate. However, for investors in bitcoin; taxation may be similar to that of gains taxed as capital gains," Gupta explains.

This means if taxpayers redeem their investments before 3 years, they may have to pay short-term capital gains as per the current tax slab. If redemption is after 3 years, any redemption may be treated as long term capital gain and could be taxed at 20 percent with indexation.

However, the confusion still persists.

According to Sandeep Sehgal, director, taxes and regulatory, AKM Global, a consulting firm, bitcoins created by mining are self-generated capital assets and may be taxed as capital gains but section 55 of the Income Tax Act, 1961 does not recognize the same.

Also read:How to show earnings from cryptocurrencies in your ITR

Section 55 of the I-T Act talks about the cost of acquisition and improvement.

Sehgal is of the view that profits from cryptocurrencies can be treated as income from other sources and gains from frequent trading can be treated as income from speculative business income.

More clarity is awaited on this from the tax authorities.