This move could significantly increase the tax burden for cryptocurrency investors.
The government is looking to adjust the definition of income and earnings specifically for crypto assets in the upcoming budget.
This could mean that income tax on returns for investors or traders could be as high as 35% to 42% in the future.
The government has reached out to top tax advisors regarding changes that will only affect crypto assets and not any other asset class such as stocks.
“If the definition of income in the tax framework is changed, it could give the tax administration respite to levy income tax on any gains accrued from investing and trading in cryptocurrencies. Some clarity is needed regarding taxation around cryptocurrencies even if Dhruva Advisors CEO Dhruva Kanabar said. , a tax advisory firm, “We don’t have a framework that defines an asset class.”
The government is also looking to clarify how returns are calculated for cryptocurrency investors.
That is, Indians who saw their cryptocurrency rise in value during the year and traded it for other crypto assets without converting it back into fiat currencies or INR would also face taxes.
“Even if any asset, for example a board or other crypto asset, is paid for in cryptocurrency, it is still income in the hands of the recipient. Since cryptocurrency has a base value in Indian rupees, it should be taxed as income,” said Sudhir Kapadia, Leader. National Taxation, EY India.
Investors will be forced to calculate the actual returns on their crypto assets, every time they sell them, and pay a tax on it.
Someone close to the development said that they could continue to buy another crypto asset from that money — or cryptocurrency after that.
Apart from that, the government can also levy Goods and Services Tax (GST).
The government can levy 18% GST on cryptocurrency trading, and this amount can be borne by the individual who buys it if the exchanges decide to pass it on to them.
“The government is considering a tax proposal that would allow it to tax all crypto holdings. So the GST would be 18%, and individual owners would be taxed at the highest bracket. If companies are dealing in income, they can show crypto investments in another income bracket. ‘ said a person familiar with the evolution.
The government plans to define cryptocurrencies as a commodity in the new bill which also proposes dividing virtual currencies on the basis of their use cases.
“There is no preparation for the bill; the government is waiting for US policies to take shape, which is expected to take shape in the next 2-3 months. After the US releases its crypto-currency policies, India is expected to decide its way forward,” said a person nearby. from the project.
Currently, there is no clarity regarding direct taxes or indirect taxes when it comes to cryptocurrencies. This is mainly because it is not defined as a currency, asset, good or service.