• Notification Date: 12-01-2022
• Notification No: N/A

Income Tax complications to arise in Digital Coins issued by Indian Exchanges

Digital assets, also known as cryptocurrencies, issued by the crypto exchanges to the employees as incentives will come under the taxman’s lens. These are mostly issued by Indian exchanges. The important question is whether these digital assets include income tax.

Many exchanges have offered their tokens as the employee’s annual income and linked it with their performance. But tax experts have declared that although they are similar to esop, they will be treated differently under the tax laws. 

Sudhir Kapadia, the national leader-tax of EY India has commented “cryptocurrency or coins given to employees are nothing but salary and shouldn’t be equated to esops as these have liberal interpretation and leeway when it comes to income tax. These coins should face normal income tax, too, on their actual market price in the year the employee received them.”

According to this comment made by Mr. Kapadia, the digital coins might be charged with tax as per the market value.

The value of Bitcoin and Ethereum has increased substantially in the last couple of years. Startups and crypto exchanges are issuing tokens as incentives to their employees in the present times. According to tax experts, income tax is likely to be triggered as soon as the employees actually get the money. 

In terms of Kapadia, the incidence of taxation is likely to get postponed upon contractual terms in case of deferred compensation. According to ET, the government is looking forward to fine-tuning income and gains related to cryptocurrency assets. Profits that are made from investments and trading in cryptocurrencies shall be treated as business income. Income tax charged on the returns made by the investors may rise up to 35% to 42%. According to the tax department, 18% of GST is applicable on the exchanges made in cryptocurrency.