Indian traders may soon have to start paying taxes on their digital currency income. According to a local report, the country’s taxman has been monitoring the industry, seeking to impose as much as 30% tax on digital currency earnings.
Digital currency trading in India has surged since the Supreme Court overturned a ban by the Reserve Bank. Most trading platforms have recorded a surge in user signups and trading volume. WazirX, the largest exchange, has recorded a 125% increase in signups in the past six months. Its biggest rival, CoinDCX has registered an 85% growth on its part.
This unprecedented growth has caught the eyes of India’s Income Tax Department. According to a report by local newspaper Economic Times, the department is contemplating imposing income tax on digital currency earnings.
As per the paper, the agency has been monitoring traders’ earnings on trades made through banking channels. Sumit Gupta, the CEO of CoinDCX, further revealed that the agency can monitor earnings via the exchanges or other payment channels.
Gupta was quoted by CoinDesk saying, “The tax authority can also monitor earnings of cryptocurrency investors registered through KYC/AML compliant exchanges like CoinDCX and through national identity documents such as the PAN card.”
According to local tax expert Amit Maheshwari, the taxman will treat active trading as a speculative business. This will attract normal tax rates which could be as high as 30%, Maheshwari, a partner at consulting firm AMK Global, told Economic Times.
For infrequent or one-off traders, the agency may treat their income as capital gains, long-term or short-term, depending on their holding period. This would attract a concessional capital gains tax rate.
The newspaper reports that most tax experts anticipate a 30% tax on digital currency gains. Many are advising their clients to file their returns as capital gains, as they would with stocks, to attract a lower tax rate.
On the current taxation setup, Gupta revealed, “Currently, if an investor submits his Income Tax declaration, the amount of earnings generated by investing in cryptocurrencies is highlighted under Income from Other Sources.”
The report didn’t indicate if the tax agency will issue guidelines for digital currency block reward miners. According to Indian tax fintech firm ClearTax, no capital gains arise from block reward mining. However, the startup believes that the tax agency may “choose to tax the value of digital currencies received from mining under the head “Income from other sources.”