What Legal Experts Have to Say: Understanding Tax Implications of Cryptocurrency Trading in India Even if you engage in cryptocurrency buying or selling activities on exchanges situated outside of India, you are still obligated to disclose your earnings to the tax authority.
The implementation of a flat 30% tax on income derived from cryptocurrency and other virtual digital assets (VDAs) in India has raised concerns among Indian crypto investors on how to avoid paying such a high tax. Many investors have been searching for loopholes to evade taxes, and some have fallen victim to misleading advice from self-proclaimed experts. One such erroneous advice is that investing in foreign exchanges could help avoid the 30% tax.
However, legal experts have clarified that investing in foreign exchanges does not exempt Indian investors from paying the 30% tax on crypto income. It is important to note that the tax applies to the income generated by Indian investors from crypto or other VDAs, regardless of the origin or location of the exchanges.
According to Sameer Jain, Managing Partner at PSL Advocates & Solicitors, the 30% tax regime introduced through the Finance Act of 2022 should not be misunderstood as a tax on exchanges. While most major crypto exchanges are located outside India, the tax is actually imposed on the income of the trader, not on the exchanges themselves. Therefore, regardless of the exchange's location, income earned through crypto trading by Indian taxpayers is subject to taxation, as the taxable event is the profit gained from trading. The provision is jurisdiction-neutral, meaning that it does not matter whether the profit is earned on a local or foreign exchange. Jain shared these insights with FE Online.
The stringent tax regulations on cryptocurrency in India have prompted several Indian crypto exchanges and companies to relocate to crypto-friendly tax regimes such as Dubai or Singapore. However, Indian investors should be aware that the 30% tax announced by the Government of India is not based on the location of the exchange. The rule is straightforward: if you earn income, you must pay taxes.
Utsav Trivedi, Partner at TAS Law, emphasized that investors must keep in mind that the Indian tax regime on cryptocurrency is not dependent on the exchange's location. Even if a crypto exchange that provides services to Indian customers is based outside India, Indian investors are still subject to the tax regulations since they are imposed irrespective of the location of the exchange where the crypto trading occurs.
According to Rishi Anand, Partner at DSK Legal, Indian investors are unlikely to receive any relaxation or exemptions from tax implications even if the crypto exchange on which they are trading moves its business outside India. The proposed tax regime on cryptocurrency is agnostic of the location of the crypto exchange. Until further clarifications from the government, taxes would be levied on funds or any gains repatriated to India on the sale of any cryptocurrency by an Indian resident.
Experts emphasize that not paying taxes on crypto income earned through exchanges located outside India is equivalent to tax evasion and may lead to legal complications. Even if you buy or sell cryptocurrency on foreign exchanges, you are still required to report your income to the tax department. Anushkaa Arora, Principal and Founder of ABA Law Office, warns that trading on international exchanges using cryptocurrency to avoid the 30% tax would be considered an attempt at tax evasion. The transaction would fall under Section 115AD of the Income Tax Act, 1961, based on the facts of each case. It is better to be alert and comply with the tax regulations than to face legal consequences later.
Answers to Commonly Asked Questions about Cryptocurrency Taxation in India
Applicability of 30% Crypto Tax on Cryptocurrency Received as Salary in India
According to tax experts, salaries paid in the form of cryptocurrency are not subject to the 30% tax on crypto income. Instead, they will be treated as regular income and taxed according to the standard "income from salary" tax regulations.
Can cryptocurrency losses be set off against cryptocurrency gains in India?
According to experts, it is not possible to set off losses incurred on one crypto asset against the profits gained from another crypto asset. For instance, if an individual has gained profit from Bitcoin investments and incurred losses from Ethereum, the losses from Bitcoin cannot be used to offset the gains from Ethereum. The gains made from Ethereum will be subject to the tax rate of 39% set for the financial year-end.
Is Crypto Mining Taxable in India?
According to the current crypto tax bill in India, there is no tax on crypto mining. However, any crypto tokens earned through mining must be reported as business income for tax purposes.
Disclaimer:
Please note that the information and material presented here are subject to change without prior notice, and the prices mentioned may vary based on market demand and supply.