In recent years, the use of virtual economies has skyrocketed. There are an estimated 16.7 million bitcoins in use today, valued at up to $17,000 per bitcoin in 2017. Because these bitcoins can, in some circumstances, be used to purchase goods or services with a monetary value or where they can be converted to legal tender, the proper income tax treatment of bitcoin transactions presents both compliance and substantive questions for regulatory bodies across the world. To date, there remains little legal or academic guidance on the use of bitcoins, or the taxation of bitcoin transactions. This research paper explores the current state of the law as it relates to bitcoins in the various economies of the world.

The virtual universe and electronic commerce will only grow—and where income exists, taxation should follow.Various countries have laid down guidelines and many other are in the process of initiating taxation of cryptocurrencies, India being one among them. Keeping in mind the unfavourable regulatory regime and uncertain tax treatment of cryptocurrencies in India, initiatives that hurt genuine customers and incentivize shifting business outside India would also affect the government in the longer run, as it would be a huge revenue loss to the tax department if trades simply move abroad.

With any new technology, the risk of abuse is always existent. However, keeping in mind the tremendous technology of block chain in the longer run, which can form the backbone of a secure digital infrastructure, it is worth endeavouring to find appropriate means of regulating this ecosystem, rather than out rightly banning it.

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