How to avoid paying 30% tax on crypto income in India? This is probably one of the biggest questions on the minds of Indian crypto investors since the announcement of the 30% flat tax on income from cryptocurrencies and other virtual digital assets (VDAs). Many investors are still looking for tricks to avoid taxes. In search of tax savings, they are falling prey to many so-called experts. One such trick shared by these so-called experts is that you can avoid 30% tax by investing in foreign exchange.
However, legal experts say that you cannot avoid paying a 30% tax on crypto income by investing in currencies. It is important to understand that the 30% tax applies to income that Indian investors may earn from cryptocurrencies or other VDAs. This has nothing to do with the location or origin of the exchanges.
READ ALSO | How Not To Be A Crypto Fool: 5 Point Guide
โWhile the major crypto exchanges are located outside of India, the new 30% tax regime introduced in the Finance Act 2022 should not be confused with a tax on exchanges. It is a tax on the merchant's income. Therefore, in my opinion, regardless of the location of the exchange, the income would be subject to tax due to the fact that the taxable event is the profit obtained through cryptocurrency trading for the beneficiaries in India. The provision is jurisdictionally neutral and it would not matter whether the gain is made in a local or foreign currency,โ Sameer Jain, Managing Partner of PSL Advocates & Solicitors, told FE Online.
What happens if Indian exchanges move abroad?
The strict tax regime for cryptocurrencies is forcing many Indian cryptocurrency exchanges and companies to relocate their bases to places like Dubai or Singapore as they offer a crypto friendly tax regime. However, Indian investors should be aware of the fact that the 30% tax announced by the Government of India is not based on the location of the exchange. The rule is simple: if you generate income, you pay taxes.
โInvestors should note that the tax regime imposed in India is not based on the location of cryptocurrency exchanges. Any crypto exchange serving Indian Clients who are based outside of India would not exempt Indian Investors from the tax regime as it is independent of the location where the crypto exchange takes place,โ said Utsav Trivedi, Partner at TAS Law.
READ ALSO | How to identify a dubious crypto project and protect your money, time
Rishi Anand, a partner at DSK Legal, said that Indian investors are unlikely to get any relaxation or exemptions from the tax implications, even if the cryptocurrency exchange they are trading on moves its business out of India.
โThe proposed tax regime on cryptocurrencies is independent of the location of said cryptocurrency exchange, and until further clarification by the government, taxes would be levied on funds or any profits repatriated to India from the sale of any cryptocurrency by a Indian resident," Anand said.
Not paying taxes = Tax evasion
Even if you buy or sell cryptocurrencies on exchanges located outside of India, you must report your income to the tax department. Experts say that not paying taxes on that income would be tantamount to tax evasion and can complicate your life due to legal issues.
โIt is incorrect to say that people can avoid the 30% tax by trading on international exchanges using crypto. This will be an attempt at tax evasion, as seen by the departments/authorities involved. Said transaction will be governed by Section 115AD of the Income Tax Act of 1961, depending on the facts of each case, therefore, it is better to be alert than to regret laterโ, said Anushkaa Arora, director and founder of ABA Law Office.
