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Centre contemplates on taxation framework for digital currencies

Centre contemplates on taxation framework for digital currencies
The Centre is keen to regulate digital currencies, most commonly called cryptocurrency, through a legal taxation framework.

Cryptocurrency

Centre contemplates on taxation framework for digital currencies

The Centre is keen to regulate digital currencies, most commonly called cryptocurrency, through a legal taxation framework. The Reserve Bank of India is also holding discussions and meetings on the same.




Officials said deliberations are underway to explore the possibility of imposing short term and long term capital gains tax. They said the option of imposing GST at the rate of 18%, in line with the rate for most services in the financial sector, is being looked into.

The government, as per sources, is considering cryptocurrency players under the regulatory ambit. The definition of a brokerage will be broadened to include entities that undertake or facilitate digital asset trades, which would include practically all cryptocurrency exchanges. Prime Minister Narendra Modi, at the Sydney Dialogue, said it is important that all democratic nations work together on this and ensure it does not end up in the wrong hands, which can spoil the youth. For direct taxes, officials said the Finance Ministry has the option of taking up the issue through amendments to the Finance Bill.

A source added that the issue of defining and regulating cryptocurrencies will be taken up through legislation, whereas taxation aspects need to be dealt with separately. An expert told The Indian Express that for digital currencies or cryptocurrencies to be taxed, it needs to be defined structurally and legally. “It has the scope of being taxed through the category of financial services but apart from that, the buyer gets an asset which has underlying value. Unless there’s a carved-out category like gold under GST, it would be tough to levy indirect tax. As an asset, the main way to tax it would be through direct tax on the net gains through trade in it.”

Sudhir Kapadia, national leader-tax at EY India, told ET that tax treatment of sale of cryptocurrency held by individual investors, the principles governing taxation of securities as capital gains versus business income would equally apply in respect of cryptocurrency assets. “In other words, if the frequency and number of purchase and sale transactions is very high, the tax authorities may be inclined to assert business income characteristics for these transactions.


Also Read: Bitcoin takes deep plunge toward $60,000


Tax experts believe many investors have made substantial returns from cryptocurrencies and have even squared off some of their positions.


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