The Indian cryptocurrency industry is not happy with the prohibitive nature of the country’s taxation structure, according to a CoinDesk report. The industry stakeholders may approach the Supreme Court in order to seek relaxation from the structure, the report added. A decision has not been taken yet.
The legal challenge will be in the form of a public interest litigation (PIL), the news website revealed. Several representatives from the industry have been lobbying for tax breaks in their discussions with the government since the crypto tax was announced in the Budget for 2022-23 last month.
“It would have to be a collaborative effort, including crypto exchanges, (non-fungible token) platforms and blockchain companies since everyone will be affected,” an unnamed executive from a crypto exchange was quoted as saying.
The collaborative effort may see participation from a few entities as they choose to sit out the legal challenge because of their “symbiotic approach” to regulation as opposed to an “adversarial approach”, CoinDesk reported, adding that some exchanges will try to seek favourable terms through discussion.
The move to knock on the doors of the Supreme Court indicates that the industry is not satisfied with the government proposal. As the date of the implementation comes closer, the industry would want to take action swiftly given the wide-ranging implications and complications arising out of the proposed tax.
What is the crypto industry lobbying against?
The industry seems keen on getting the Union government to do away or reduce the one percent Tax Deducted at Source (TDS). Members from the crypto industry reached out to the finance ministry last week urging it to consider their proposal. The members made their representation through the Blockchain and Crypto Assets Council (BACC) which met with the ministry officials, Economic Times reported last week.
The industry suggested that the proposed TDS be reduced to about 0.01 percent.
“The 1 per cent tax at source makes it unviable and if track and trace was the intent, a 0.01 per cent can serve that intent,” IndiaTech CEO Rameesh Kailasam was quoted as saying.
Finance Minister Nirmala Sitharaman announced that the government will be charging a 30 percent tax on all crypto transactions in her Budget speech for 2022-23 in February. She also clarified then that taxation does not lend legitimacy to the unregulated crypto sector and that the government will come out with a bill after the conclusion of stakeholder consultations.
The 30 percent tax rate, which is usually reserved for horse racing and gambling, has not gone down well with the members of the industry. But many believe that the government is unlikely to budge on it, as per CoinDesk.
By heavily taxing crypto we’re not just demotivating people from investing in this asset class but also demotivating innovators and investors from building and investing in these businesses.
A better taxation plan for #crypto will open up many opportunities.#ReduceCryptoTax
— Sumit Gupta (CoinDCX) (@smtgpt) March 14, 2022
Loss on crypto-assets cannot be offset against gains
To add insult to injury, the Union government recently clarified in Lok Sabha that losses incurred from one kind of virtual digital assets (VDAs) cannot be offset against the gains from any transaction involving another VDA while computing tax. The answer came in response to queries by Lok Sabha MP Karti P Chidamabaram.
It may end up dissuading traders and investors as the burden of losses will have to be managed by the investors themselves. Ashish Singhal, Co-founder and CEO of CoinSwitch said: “This is detrimental for India’s crypto industry and the millions who have invested in this emerging asset class. We fear the lack of provision to offset losses will drive away users from KYC-compliant exchanges and platforms to the underground peer-to-peer grey market, which would defeat the purpose of the tax.”
Singhal added that the move is also regressive and not in line with the government’s recognition of VDAs as an emerging asset class.
Rs. 100 invested into Coin1
Rs. 100 invested into Coin2
Total Investment: Rs. 200You make Rs. 100 profit in Coin1 and lose Rs. 100 in Coin2
You have to pay 30% for Coin1 profit since you won’t be able to offset Coin2 loss
You now have: Rs. 170
— Nischal (Shardeum) ⚡️ (@NischalShetty) March 21, 2022
The government also clarified that expenditure on mining infrastructure will not be considered as the cost of acquisition. The cost can then be treated as a deductible from overall gains.
“Infrastructure costs incurred in mining of VDA (eg. crypto assets) will not be treated as cost of acquisition as the same will be in the nature of capital expenditure which is not allowable as deduction,” the minister answered.
Is the Union government planning to bring crypto under GST?
The crypto industry was cautioned by government officials that they should be focused on GST instead of TDS. The officials were referring to a plan in which the government is looking to bring cryptocurrencies under the ambit of GST, according to a Press Trust Of India report.
India levies an 18 percent tax on the services provided by crypto exchanges, which could be increased to 28 percent, PTI wrote in its report. GST officers were of the view that cryptocurrencies, by nature, are similar to lottery, casinos, betting, gambling, horse racing, the report added.
If GST is levied on the entire value of cryptocurrency transactions, the rate may be in the ballpark of 0.1 to 1 per cent, another official said. “The percentage of tax, whether it would be 0.1 per cent or one percent, is still being debated. First, a decision on the classification of the asset has be made, and then the tariff would be discussed,” an unnamed official told PTI.
Also Read:
- The legal anatomy of cryptocurrency regulation in India
- Dubai to have its own law on digital assets like crypto, along with a regulator to supervise them
- Guidelines: ASCI’s 12-point checklist for crypto and NFT ads
- India’s most advisable option for dealing with cryptocurrencies is to ban them: RBI Deputy Governor
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