Bitcoin (BTC) and other cryptocurrencies bought from exchanges outside the country could cost Indian investors additional tax, while the tax department is looking into whether crypto falls subject to the 2% equalization levy, reported the Economic Times.

Google tax

Services provided in India by overseas e-commerce companies are subject to the equalization levy, also colloquially called the “Google tax” but the experts are still uncertain how it’s applicable to crypto.

“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,” tax expert and founder of Transaction Square tax-advisory company, Girish Vanvari, told Economic Times, adding:

“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 Foreign Exchange Management Act.” 

According to his interpretation, the levy, which is usually meant for foreign corporations, would apply to the selling prices, meaning exchanges might add it to the cost of cryptos.

Missing guidelines

In 2020 India expanded the scope of the equalization levy to cover “e-commerce supplies or services,” not exempting business-to-customer transactions.

The 2021 Finance Bill clarifies that the equalization levy now includes online marketplaces that function entirely as intermediaries between buyers and sellers as it clarified the terms not defined in Finance Act 2016, which created the levy, nor in Finance Act 2020 that expanded it.

The country is yet to classify cryptocurrencies and the absence of a regulatory framework makes it more difficult to understand the implications of the equalization levy.

Legislators in India were sending mixed signals regarding Bitcoin recently, ranging from banning to classifying it as an asset class. 

Will the tax law speed up the process or have they found a way to bypass the issue altogether until they make up their mind?  

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