The Taxation of Cryptoassets in India: A Review of Evolving Tax Policy and Law

Abstract

The evolution of cryptoassets has been an exasperating experience for tax administrations the world over and it is no different in India. Over the years, the Indian authorities have struggled to frame regulations delineating the acceptability and contours of cryptoasset transactions and the issue has been compounded by judicial involvement. Nonetheless, the Indian tax administration has shed its inertia in order to introduce a specific and high tax incidence regime for cryptoassets, which treats these assets as distinct from capital assets. The value-added tax (VAT) rules, however, are a work in progress. The purpose of this paper is to trace the evolution of the taxation of, and regulatory framework for, cryptoassets in India, which continue to be intricately intertwined.

The methodology employed in this paper is deliberately less analytical and more informative so as to inform the readers about contemporary developments, thereby highlighting the challenges faced by developing nations when framing tax policy and law for cryptoassets. The paper finds that the existing regulations are a work in progress, with larger concerns, such as money laundering and tax evasion, overwhelmingly dictating the evolution and enforcement of tax laws for cryptoassets. These findings have serious implications for the crypto ecosystem, because the initial reaction of the crypto market participants to these high tax incidence and strenuous withholding tax requirements reveals a clear inverse correlation between the tough tax and regulatory regime and crypto transactions.