In the backdrop of rapidly blooming cryptocurrency trade in India, the tax department is mulling over ways to levy a new crypto tax, making the purchase of cryptocurrency from overseas exchanges more expensive. As per a report by Economic Times, India’s Income Tax department is keen on bringing crypto trading exchanges based outside the country under its gambit by imposing an equalization levy of 2%.
What is the Equalization Levy?
An equalization levy is a direct tax imposed on foreign tech companies operating in India.
Introduced in the 2016 financial budget, the levy is intended to tax digital transactions in India but whose income is accrued to the foreign company located outside the country.
Popularly referred to as the Google Tax. A levy of 6% is currently applied on online advertisements placed on digital platforms like Google, Facebook, and Twitter. The Finance Act of 2020 expanded its scope to include non-resident ‘e-commerce operators’ who are now liable to pay an equalization tax of 2%.
Does crypto trading come under the ambit of Equalization Levy?
At present, the absence of any guidelines on cryptocurrency trading has caused ambiguity on how these digital assets would be treated under the tax laws.
However, the tax department is mulling over the possibility of treating cryptocurrencies as ‘goods, services, or commodities’ to ascertain the applicability of the 2% equalization tax on crypto-assets like bitcoin bought online by Indians on foreign exchanges.
“The way the new equalization levy is worded and defined, it appears that it will also be applicable on cryptocurrency bought from an exchange not based in India,” Girish Vanvari, founder of Transaction Square, told The Economic Times.
How does the Equalization Levy affect crypto traders?
An equalization levy of 2% on the selling price will force overseas trading exchanges to add this to the cost of the cryptocurrency. At a time of extreme volatility, an additional burden can be worrisome.
As of now, these are mere speculations. Until there is a clear worded direction from the tax authorities, investors enjoy the benefit of the doubt and are free from any form of equalization tax.
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