India’s regressive taxation policy for virtual digital assets (VDAs), in place since April 1, has caused the cryptocurrency industry to contract.
Now, the government is reportedly considering 28% goods and services tax on virtual coins. This is at par with the levy on casinos, betting, and lottery.
The country taxes up to 30% on earnings from the transfer of crypto asset transactions and non-fungible tokens and deducts 1% as tax at the source of income above a certain threshold. Gifts in crypto and digital assets are also taxed.
Since this tax regime came into effect last month, trading volumes on India’s major cryptocurrency exchanges have slumped significantly. WazirX saw a drop of 72%, ZebPay was down 59%, CoinDCX 52%, and BitBns 41%, according to data on CoinMarketCap and Nomics, a data firm.
This has sparked resentment in the cryptocurrency community.
“Virtual digital assets are an asset class with varied use cases across industries. It’s not akin to gambling or lottery as being made out,” Aritra Sarkhel, director of public policy at WazirX, said.
“It will be great if deliberations are made to keep the taxation on VDAs in line with India’s treatment of other regular financial instruments and/or evaluate the different use cases of the tokens while making decisions on crypto taxation.”
Sarkhel thinks it will be essential to look at global jurisdiction arguments on such tax.
PwC, in its annual global crypto tax report (pdf), noted that the way cryptocurrencies are classified by local law determines tax rules for capital gains purposes, and each transaction should be assessed on a case-by-case basis.