Existing law in India could mandate a 2% levy on cryptocurrency purchases from offshore-based exchanges servicing India’s market.
According to local sources, the Indian Government’s 2% “equalisation levy” could be extended to crypto-assets purchased from off-shore exchanges.
According to a June 22 report from Economic Times, analysts are inferring that existing law could require a 2% levy to be added onto the settlement price of crypto bought from overseas-based crypto exchanges operating in India’s market.
The equalisation levy was first introduced by the government in 2016, imposing a 6% tariff on payments for e-commerce supply and services to non-resident companies without a permanent establishment in India.
However, the equalisation levy was updated in mid-2020. Now dubbed the “Google Tax,” the updated legislation imposed a 2% tax on services provided by off-shore e-commerce operators conducting business in India, with tax experts inferring that the tariff may also apply to foreign-based crypto exchanges servicing Indian customers.
“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,” Girish Vanvari, founder of tax advisory firm Transaction Square, told Economic Times. He added:
“The levy is on the selling price and companies may be required to add this to the cost of the crypto assets.”
Amit Maheshwari, tax partner at tax consulting firm AKM Global, argued it would be difficult for India’s government to impose a 2% levy without first establishing a broader regulatory apparatus addressing crypto assets, stating:
“In the absence of any guidelines on the treatment of crypto assets, there is ambiguity in how these would be treated under the tax laws and FEMA (Foreign Exchange Management Act).”
The regulatory status of crypto assets has long been a contentious issue, with Cointelegraph reporting on June 16 that the Indian government is reviewing whether to introduce a bill banning crypto outright, with some officials arguing digital assets should be classified as an alternate asset class.
The Reserve Bank of India (RBI), appears to have maintained its anti-crypto stance, with RBI Governor Shaktikanta Das stating the central bank has “major concerns” regarding cryptocurrency that it has conveyed to the government.
In March 2020, India’s Supreme Court repealed the RBI’s two-year prohibition on local financial firms providing banking services to businesses operating with crypto assets.