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The Indian Department of Income Tax (IT) is reportedly considering imposing a 2% equalization levy on crypto exchanges on exchanges based outside the country. The equalization tax generally applies to foreign companies operating in India. It is unclear how a tax typically intended for businesses will apply to traders and individuals who buy crypto. The equalization tax could also become a bone of contention between India and the G7 countries. Trading on crypto exchanges that are not based in India may become more expensive, with the country’s regulator considering a 2% equalization tax on crypto transactions.
The new equalization levy – a tax India imposes on foreign companies – would apply to Bitcoins and other cryptocurrencies purchased on exchanges that are not based in India, according to the Economic Times. “The tax department is now examining whether the 2% levy is applicable on crypto assets purchased online by Indians from foreign exchanges,” the report said.
How will crypto traders be affected by the new tax? It is not known why cryptocurrency traders will be affected by this. “The way the new equalization levy is worded and defined, it looks like it will also be applicable on cryptocurrency purchased from an exchange not based in India,” said Girish Vanvari, founder of the consultancy firm. fiscal Transaction Square, at The Economic Times.
However, that doesn’t clarify why a tax aimed at businesses will mean for individuals with cryptocurrency holdings. It is also unclear whether cryptocurrencies can be categorized as goods, services, or commodities.
At present, individuals in India do not pay tax on income from crypto trading unless they have converted Bitcoins, Ethers, and respective tokens into Indian rupees.
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What is an equalization levy?
The equalization levy, often referred to as the ‘Google tax’, was originally intended for foreign tech companies doing business in India but not paying their equivalent share of taxes because their headquarters were not local.
There has been fierce opposition from tech giants like Google and Twitter, who may have to pay up to 25% more in taxes in the country. Some have also argued that the tax could be contrary to international trade laws.
“The United States is trying to protect its own tax base. Countries like India are not likely to accept this as being enough to replace profit sharing with the existing equalization levy – it’s tiny compared to what we have, ”Dinesh Kanabar told Moneycontrol, CEO of the tax consultancy firm Dhruva Advisors.
The equalization tax could also become a bone of contention between India and the G7 countries. The grouping of countries has its own new digital tax that it wants to put in place. It also forces tech giants like Google, Facebook, Twitter and others to pay taxes in the countries where they operate, but India’s equalization tax would bring the country higher income.
It’s been just under two months since almost all crypto traders in India had to stop making deposits in Indian Rupee exchanges. But most industry players expect these issues to be resolved soon enough.
However, even if they do, users in India may need to rethink their crypto-trading strategies with this new equalization tax coming into play.
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