Analysis of India's Taxation and Regulatory System for Encryption Assets

1. Introduction

India is one of the fastest-growing major economies in the world, with a GDP of $3.53 trillion in 2023, surpassing the UK to become the fifth-largest economy globally. In recent years, most of India's economic activity has been driven by investment, with the annual investment-to-GDP ratio rising from 31.6% before the pandemic to 33.7% in 2023. Morgan Stanley analysis suggests that the Indian stock market has become the fourth-largest stock market in the world and is expected to become the third-largest stock market globally by 2030. However, India also faces significant economic imbalance issues, with a large disparity between total GDP and per capita GDP, severe imbalances in economic and industrial structures, and significant differences in living standards among regions.

2. Overview of India's Basic Taxation System

2.1 Indian Tax System

India's tax system is established based on constitutional provisions. The authority to collect taxes is primarily concentrated between the federal central government and the states, with local municipal governments responsible for a small number of tax types. The types of taxes collected by the central government include corporate income tax, individual income tax, property tax, goods and services tax, customs duties, etc. The Indian Revenue Service (IRS) manages tax affairs, which includes the Central Board of Direct Taxes and the Central Board of Indirect Taxes and Customs.

2.2 Corporate Income Tax

The basic corporate income tax rate for resident enterprises is 30%. Some enterprises are subject to specific preferential tax rates, such as 25% for small and medium-sized enterprises and 15% for newly established manufacturing enterprises. Non-resident enterprises usually apply a rate of 40%. India offers various tax incentives, including full or partial exemptions, reduced rates, refunds, accelerated depreciation, or special deductions.

2.3 personal income tax

Residents of India are required to pay taxes on their income worldwide. Non-residents only need to pay taxes on income earned in India. Personal income tax adopts a classified comprehensive tax system with progressive tax rates. The rates range from 5% to 30%, with an exemption for annual income below 500,000 rupees. Certain benefits and allowances may enjoy tax preferential treatment.

2.4 Goods and Services Tax

Since July 1, 2017, the Goods and Services Tax (GST) reform has been implemented. Currently, the basic GST rates are divided into four tiers: 5%, 12%, 18%, and 28%. In addition, there are two rates of 0.25% and 3% applicable to a small number of specific goods. Certain products are also subject to additional taxes ranging from 1% to 204%.

3. India's encryption asset taxation system

3.1 Overview of India's encryption tax

Starting from April 1, 2022, a tax rate of 30% will be imposed on profits obtained from trading encryption currency. Additionally, from July 1, 2022, if the total amount of encryption transactions exceeds 50,000 rupees within a fiscal year, a 1% Tax Deducted at Source (TDS) will be levied on the transfer of encryption assets.

3.2 Specific Application of Encryption Tax

A 30% encryption tax applies to situations such as selling cryptocurrency for fiat currency, conducting encrypted transactions 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 according to the personal income tax brackets.

3.3 Source Deduction Tax (TDS)

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

3.4 Tax regulations related to losses and losses

It is prohibited to use losses from encryption currency to offset gains from encryption currency or other income. Investors cannot report expenses related to encryption currency unless they are the acquisition costs of the assets. There is currently no clear guidance regarding lost or stolen encryption currency.

4. Overview of India's encryption asset regulatory system

India currently lacks a comprehensive encryption currency regulatory framework. There are differing views within the government regarding encryption currency regulation, and the encryption currency bill is still under discussion. Some exchanges have adopted self-regulatory measures, such as implementing strict KYC and AML procedures. The government primarily supervises the industry through taxation and anti-money laundering measures. In 2024, Binance successfully registered as a reporting entity in India, which could become a catalyst for India to establish a more comprehensive encryption currency regulation.

5. Summary and Outlook

Although India has not yet established a comprehensive regulatory framework for encryption assets, it has conducted preliminary management through taxation measures. In the future, with the development of the global encryption market, the Indian government may introduce more refined regulatory policies. Tax compliance and anti-money laundering will be key factors for the sustainable and healthy development of India's encryption asset ecosystem. India is striving to create a more stable and mature market environment to promote the healthy development of the cryptocurrency industry.