India’s federal and finance ministers will attend a panel on June 28-29 to decide whether to introduce an additional 28% tax on cryptocurrency transactions.
The tax in question will be introduced on top of the already existing 30% crypto income tax.
It has been said that the panel will reportedly not be able to set a final rate during the two-day meeting. What is certain, however, is that they will be discussing a rate in the top tax bracket of 28%.
Income tax was not enough
The 30 percent crypto income tax went into effect in February 2022. India’s Finance Minister Nirmala Sitharman called the tax bill another step towards positive crypto regulation.
“All income from the transfer of virtual digital assets will be taxed at a rate of 30%. In calculating this income, no deduction shall be allowed in respect of expenses or allowances, other than acquisition costs.”
Within months of the new tax rate, crypto trading volume dropped by 30%. The tax rate also prompted major exchanges like Coinbase and FTX to consider exiting the Indian market entirely.
However, the Indian authorities did not consider the 30 percent income tax to be sufficient. A few months after the tax was introduced, India’s former finance minister came forward and said crypto is like gambling and more taxes are needed to discourage people from getting involved in crypto.
He urged the current government to increase the tax rate to 40 or 50%, saying:
“There is no advantage of cryptocurrency for this country. I urge the youth of this nation not to move towards cryptocurrency.”
Incoming additional taxes
In addition to the 30 percent crypto income tax, the Indian government intends to levy two additional taxes on the crypto industry.
The 30% tax rate was applied to profits made through centralized exchange platforms. To avoid high taxation, many Indians turned to DeFi projects that fell outside the scope of crypto income tax.
However, the Indian government recognized the change in investor behavior and took additional precautionary measures.
In May 2022, it was revealed that India’s Central Board of Direct Taxes (CBDT) was looking into ways to introduce an additional 20% tax on income generated through DeFi.
The 28% tax rate, which the council will discuss next week, was first proposed by India’s Goods and Service Tax Council (GST) also in May 2022.
The GST considered crypto to be the same as gambling, betting and lottery. The GST set up a legal committee to classify the scope of crypto among these activities and propose an appropriate tax rate.
The committee in question mentioned the possibility of going with the additional 28% tax rate on crypto transactions to discourage Indians from crypto.