Federal and Finance Ministers of India will join a panel on 28-29 June to decide whether to implement an additional 28% tax on cryptocurrency transactions.
The tax in question will be implemented in addition to the 30% crypto income tax already in place.
It has been said that the panel won’t be able to finalize a rate during the two-day meeting, reportedly. However, it is certain that they’ll discuss a rate in the highest tax slab of 28%.
Income tax wasn’t enough
The 30% crypto income tax came into effect in February 2022. India’s finance minister Nirmala Sitharman described the tax law as another step toward positive crypto regulations.
“Any income from transfer of any virtual digital asset shall be taxed at the rate of 30%. No deduction in respect of any expenditure or allowance shall be allowed while computing such income, except cost of acquisition.”
Within a few months after the new tax rate, crypto trading volume dropped by 30%. The tax rate also pushed major exchanges like Coinbase and FTX to consider leaving the Indian market completely.
However, Indian authorities didn’t think the 30% taxation on income was enough. A few months after the tax implementation, India’s former finance minister came forward to say crypto is like gambling, and more taxation is needed to discourage people from participating in crypto.
He urged the current government to increase the tax rate to 40 or 50% and said:
“There is no advantage of cryptocurrency for this country. I request the youth of this nation to not go towards cryptocurrency.”
Incoming additional taxations
In addition to the 30% crypto income tax, the Indian government is looking to apply two additional taxes to the crypto industry.
The 30% tax rate was applied to profits earned through centralized exchange platforms. To avoid the heavy taxation, many Indians turned to DeFi projects, which were not within the scope of the crypto income tax.
However, the Indian government realized the shift in investors’ behaviors and moved on to take extra precautions.
It was revealed in May 2022 that India’s Central Board of Direct Taxes (CBDT) has been looking for ways to introduce an additional 20% taxation on income earned through DeFi.
The 28% tax rate 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 the same as gambling, betting, and lottery. The GST set up a law committee to classify crypto’s scope among these activities and propose an appropriate tax rate.
The committee in question mentioned the possibility of going with the 28% additional tax rate for crypto transactions to discourage Indians from crypto.