This report has been updated.
Indian authorities have been iffy about legalising cryptocurrencies. But, they surely know there’s much to earn from them through taxes.
The government is studying how it could levy tax on the entire value of the transaction involving digital assets under the goods and services tax (GST), according to the news agency Press Trust of India on March 21. As of now, crypto services provided by trading exchanges are categorised as financial services.
GST officers view cryptocurrencies similar to winnings from a lottery, casinos, gambling, or betting, which attract 31.20% GST on the entire value. By contrast, the tax rate on stock investments ranges from 0 to 15%, depending on whether it is filed as business income or short-term capital gain.
India has 100 million cryptocurrency users, the highest number in the world, according to BrokerChooser, a broker discovery and comparison platform.
All crypto profits gained will be taxed at a flat 30% rate, according to provisions of the Indian budget for 2022-23. The government has also mandated a 1% tax deducted at source (TDS) on all crypto transactions, irrespective of a loss or profit.
This TDS is likely to curb speculative trade, experts say, and could deplete the volume of crypto trade in India when it comes into effect in July. It could fetch $100 million in additional income, according to calculations by India’s cryptocurrency platform WazirX founder Nischal Shetty.
On March 21, the central government clarified that investors will not be allowed to adjust losses in one crypto asset against the profit earned from another. This provision, however, is available in stock investments.
Further, expenditure on mining infrastructure will not be treated as cost but as capital expenditure, on which tax deduction isn’t allowed. What’s more, the centre even wants to bring crypto trading conducted on foreign platforms under GST.
“Treating profits and losses of each market pair separately will discourage crypto participation and throttle the industry’s growth. It’s very unfortunate, and we urge the government to reconsider this,” Shetty said.