The New Crypto Tax in India: An Attempt To Discourage Cryptocurrency Enthusiasts?

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Crypto tax in India could soon become a reality. In the coming days, crypto traders in India may end up paying more if they buy cryptocurrencies from exchanges outside the country. According to a recent media report, crypto exchanges that are not based in India may be subjected to an additional 2% tax.

The Indian tax department is considering levying a 2% equalization charge, which might be applied to crypto-assets. The news comes from sources who have knowledge about the matter. Known as “Google Tax,” the additional tax is aimed at companies who operate in India but are not based in the country.

Subject knowledge experts are speculating if the new tax can be expanded to crypto exchanges since it is meant for corporations and not traders or individuals. Crypto exchanges fall under the latter. The government, however, is yet to clarify why crypto traders have to pay the Google Tax.

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Cryptocurrency Tax in India: Big Picture

  • The tax on cryptocurrency exchanges will be applicable on the selling price, meaning that crypto exchanges will ask their customers to pay up more.
  • The tax will increase the buying price of cryptocurrencies by 2%.
  • The tax will be applicable from corporations to any individual who buys or sells from an entity not based in India.
  • While the new Cryptocurrency tax is introduced, there is no clarity if cryptocurrencies come under goods, commodities, or services.
  • As of now, crypto investors do not have to pay tax on incomes generated from crypto trading. However, they have to pay tax when they convert crypto to Indian Rupee.
  • The crypto enthusiasts in India are in hot water due to uncertainty and obscurity on the legality of cryptocurrencies in India.
  • Financial institutions are advised to make moves with utmost precautions when it comes to processing transactions related to cryptocurrencies. This is keeping a lot of traders and investors away from investing in crypto.
  • The recent crash of the cryptocurrency market has given strength to the belief of people like Andrew Bailey, Governor of Bank of England. His strong-worded statement against the investment in cryptocurrencies is making waves nowadays.
  • In the last 15 months, the number of people investing in cryptocurrencies has risen exponentially.
  • India’s largest crypto exchange, WazirX, reported that it hit $5.4 billion in terms of volumes. If we compare this to December 2020, the transaction value shot up by more than ten times. WazirX also claims that their userbase increased almost 50% between April and May.
  • Another India Cryptocurrency exchange CoinSwitch Kuber raised $25 million after it was valued at $500 million in April this year.
  • Despite such encouraging figures, the uncertainty is impacting investment in crypto-based startups in India. According to a recent report, investment in crypto and blockchain startups in India during the 1H 2021 remained much lower than the ones in the US.

 

“The way the new equalisation levy is worded and defined, it appears that it will also be applicable on cryptocurrency bought from an exchange not based in India,” says Girish Vanvari, the founder of Transaction Square.

Google Tax on Crypto Exchanges: Food For Thought

Over the last few years, crypto exchanges based out of India have been shifting their headquarters overseas. Several companies did this to save themselves from Indian laws.

Coming to tax laws, the place where the company is based determines the first right to tax. Recently, many companies have followed Binance and shifted all operations overseas while marketing in India.

The equalization levy was initially applicable to companies who avoid paying taxes because they are not based in India, such as Google and Twitter.

The law is already being opposed by tech giants Twitter and Google, who might have to pay 25% more tax to the Government of India. Some people suggest that it might be against international trade laws.

If the levy comes to fruition, crypto investors might have to reconsider their trading strategy from scratch.

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