Detailed Explanation of India's Cryptocurrency Taxation and Regulatory Policies

1. Introduction

As one of the fastest-growing large economies in the world, India's economic development has attracted significant attention. In recent years, India's GDP has grown rapidly, surpassing the UK in 2023 to become the world's fifth-largest economy. The International Monetary Fund predicts that India's economic growth rate will reach 6.8% in 2024-2025. The attractiveness of the Indian market for investors continues to increase, with Morgan Stanley analysts believing that the Indian stock market is expected to become the third-largest stock market in the world by 2030.

However, there are also significant imbalances in the development of the Indian economy. Although its total GDP ranks high, the per capita GDP level remains low, and there are serious imbalances in both the economic and industrial structures. Overall, India is already the fifth largest economy in the world, but in terms of per capita levels, it still occupies a relatively low position, far below countries like China, Mexico, and South Africa.

2. Overview of India's Basic Tax System

2.1 Indian Tax System

The Indian tax system is based on the Constitution, with the power to levy taxes primarily concentrated between the federal central government and the states. The types of taxes levied by the central government fall into two main categories: direct taxes and indirect taxes. Direct taxes mainly consist of corporate income tax, personal income tax, and property tax, while indirect taxes primarily include goods and services tax, customs duties, etc. The Central Board of Direct Taxes under the Indian Revenue Service is responsible for managing matters related to income tax, property tax, and other direct taxes. The Central Board of Excise and Customs in India is responsible for managing customs and central excise taxes, service taxes, and other indirect tax matters.

The federal government mainly levies goods and services tax, stamp duty, federal excise duty, entertainment and gambling tax, land revenue tax, etc. The taxes levied by local city governments mainly include property tax, market entry tax, and public utility usage tax, etc.

India's tax collection strictly adheres to the principle of legality in taxation. Due to the adoption of the Anglo-American legal system, Indian tax law is constrained by the interpretation of case law. The legal principles or rules established in the judgments of higher courts are binding or influential on subsequent tax case rulings.

2.2 Corporate Income Tax

Indian enterprises should pay corporate income tax on their earnings. A resident enterprise refers to an enterprise that is registered in India or has its place of effective management located in India. Taxable income is divided into four categories: operating profits or earnings, property income, capital gains, and income from other sources.

The basic corporate income tax rate for domestic enterprises is 30%. Some enterprises are subject to specific preferential tax rates, such as small and medium-sized enterprises and newly registered manufacturing enterprises. Non-resident enterprises and their branches usually apply a corporate income tax rate of 40%.

India offers several income tax incentives that apply to a wide range of industries, including export-oriented enterprises, free trade zone enterprises, infrastructure development, hotel and tourism industry, research companies, and more.

2.3 personal income tax

India's individual income tax adopts a classified comprehensive tax system with progressive tax rates. Taxable income is subject to a marginal progressive tax rate, ranging from 5% to 30%. In addition, additional taxes, such as education cess, must also be paid. Non-resident taxpayers are required to pay withholding income tax at the same rates as resident taxpayers.

Certain benefits may be eligible for tax incentives, such as housing provided by the company and employer-contributed retirement benefit funds. Some allowances may be tax-exempt or counted at a lower value in taxable income. Premiums for life insurance, contributions to social security, and educational expenses may be deductible from income.

2.4 Goods and Services Tax

India implemented the Goods and Services Tax ( GST ) reform starting from July 1, 2017, replacing various existing taxes such as value-added tax. The Goods and Services Tax is a comprehensive tax based on transactions. Currently, there are four basic tax rates, which are 5%, 12%, 18%, and 28%. In addition, there are two rates of 0.25% and 3% applicable to specific goods. Some goods are also subject to additional taxes.

3. India's encryption asset tax system

3.1 Overview of India's encryption tax

The Indian Income Tax Department has introduced the definition of virtual digital assets (VDA) in the Income Tax Act, covering all types of encryption assets. From April 1, 2022, a tax rate of 30% is imposed on profits made from trading cryptocurrencies. Additionally, from July 1, 2022, if cryptocurrency transactions exceed a certain amount within a fiscal year, a 1% Tax Deducted at Source on the transfer of encryption assets (TDS) is levied.

3.2 The specific application of encryption tax

A 30% encryption tax applies to situations such as selling cryptocurrency for fiat, trading with cryptocurrency, and using cryptocurrency to pay for goods and services. In certain cases, such as receiving cryptocurrency as a gift or mining cryptocurrency, taxes will be paid based on personal income tax brackets.

3.3 Source Deduction Tax(TDS)

Indian investors are required to pay a 1% source deduction tax on the transfer of encryption assets. TDS applies to transactions after July 1, 2022. When trading on Indian exchanges, TDS is deducted and paid by the exchange. When trading on P2P platforms or international exchanges, the buyer is responsible for deducting TDS.

3.4 Tax regulations related to loss and theft

India prohibits deducting losses from encryption for gains from encryption or other income. Investors are also not allowed to declare expenses related to encryption, unless it is the cost of acquiring the asset. There is currently no clear tax treatment guidance for lost or stolen encryption.

4. Overview of India's encryption asset regulatory system

The Indian encryption currency industry is undergoing a period filled with uncertainty. Although there is a lack of a comprehensive regulatory framework, India has taken some measures to oversee the industry, primarily focusing on taxation and anti-money laundering.

The Reserve Bank of India ( RBI ) is promoting the development of central bank digital currency ( CBDC ). At the same time, some cryptocurrency exchanges have begun to implement self-regulatory measures, such as strict KYC and AML procedures.

In 2024, the global major cryptocurrency exchange Binance successfully registered as a reporting entity in India, which could become a catalyst for India to develop more comprehensive cryptocurrency regulations.

5. Summary and Outlook of India's Encryption Asset Taxation and Regulatory System

Although India has not yet established a comprehensive regulation framework for encryption assets, it has taken initial steps to manage them through taxation. In the future, as the global encryption market develops, the Indian government may introduce more完善的监管政策.

Tax compliance and anti-money laundering will be key factors in the sustainable and healthy development of India's encryption asset ecosystem. The Indian government will strive to find a balance between promoting innovation and protecting investor interests, gradually establishing a more stable and mature market environment.