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India considering new 2% tax on all cryptos bought outside of the country

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on Jun 22, 2021
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  • Indians investing in cryptocurrency could be subject to a new 2% levy or tax.
  • But there is some imbiguity in how cryptos would be treated under the tax laws, experts say
  • Levy might be expanded to include fees on offshore exchanges processing transactions in crypto

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Indian investors looking to buy Bitcoin (BTC/USD) and other cryptocurrencies might have to pay about 2% more if they bought them from exchanges outside India. This is due to an impending equalisation levy, an additional tax imposed on such investments and trades. India’s tax department is now trying to establish whether this tax can apply to crypto assets that Indians bought online from overseas exchanges, the Economic Times reports, quoting insiders.

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The implications of the new tax

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The Indian government has enhanced the scope of an equalisation levy starting from this year to include purchases by a person or company based in India via a platform abroad. In practice, it’s difficult to determine whether it will apply to digital assets bought from a foreign exchange due to the confusing way, in which the equalisation levy is worded. Ultimately, companies might be forced to add this 2% to crypto prices, experts fear.

“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. The levy is on the selling price and companies may be required to add this to the cost of the crypto assets,” Girish Vanvari, founder of tax advisory firm Transaction Square said

At this time, it’s impossible to say whether the government can categorise cryptocurrencies as goods, commodities, or something else. There is also a chance that the equalisation levy will be expanded to include fees on offshore exchanges processing transactions in crypto.

Very few cryptocurrency exchanges pay this sort of tax, if any. The prospective increase of 2% is not insignificant for traders and investors considering how volatile cryptos are.

Introducing ‘permanent establishments’

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The concept of ‘permanent establishments’ involves a reporting requirement to determine which country has the right to tax trades and to what extent. The new tax is just one of many legislative initiatives in India.

Many companies have moved to Dubai and Singapore to avoid complications arising from the new legal guidelines. Other companies, including a large number of crypto exchanges, have formed structures to avoid having a permanent establishment in India.

Crypto World