This could make buying Bitcoin and other cryptocurrencies more expensive for Indians
India introduced equalization levy in 2016 intending to tax digital transactions- the income accruing to foreign e-commerce companies from India. Although it aimed to tax business-to-business transactions, the tax department is now wondering if the 2% levy is applicable for cryptocurrency assets bought from foreign exchanges.
According to reports, the tax department was analyzing if this tax was applicable on the purchase of digital assets from overseas exchanges. In 2020, India had expanded the scope of equalization levy to cover ‘e-commerce supplies or services.’ This expanded the scope beyond online advertising and did not exempt business-to-customer transactions.
The languages used in the Finance Act 2020 was considered sufficiently vague by some, however, if enacted, the Finance Bil 2021 will define the term “consideration received or receivable” as
- “consideration paid for the sale of goods, regardless of whether the operator held title to the goods in question; and
- consideration paid for the provision of services, regardless of whether the operator provided or facilitated the service.”
This clarifies that the equalization levy now included online marketplaces that function solely as intermediaries between buyers and sellers in the manner described above.
So, do cryptocurrency exchanges fall into these categories?
According to the founder of tax advisory firm Transaction Square, Girish Vanvari, it may.
“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.”
This will add to the cost of cryptocurrencies for users and exchanges. The tax would be on the selling price of a digital asset and crypto exchanges may be required to add this to the cost of the asset, added Vanvari.
However, India has not yet classified cryptocurrencies as goods, services, or commodities. This would make it difficult for the citizens and businesses in the country to comply with the applicable laws. If applicable, the equalization levy could make cryptos more expensive for Indian crypto fans.