The income tax department is reportedly examining whether the 2% equalisation levy (popularly known as Google tax) is applicable on crypto assets bought online by Indians from overseas crypto exchanges, as first reported by Economic Times on June 22. The levy is imposed on the non-resident e-commerce operators who receives any consideration for e-commerce supply or services (greater than INR 2 Cr in aggregate) from:
- Indian Resident;
- Person using Indian IP Address for buying such supplies or services;
- Non-resident – only in the following cases:
- Sale of advertisement – targeting Indian Resident or Indian IP User
- Sale of data – collected from Indian Resident or Indian IP User
The levy was initially imposed on digital advertisements in 2016 and was expanded to e-commerce operators in 2020. Section 166 of the Income Tax, 1961 imposes obligation on the Indian users to deduct tax at source. Several foreign cryptocurrencies have not levied any equalisation levy and end customers may end up paying from their pockets based on taxman findings. The levy is on entire consideration meaning the cost of buying digital assets from foreign crypto exchanges may jump by 2%.
“The way the new equalisation levy is worded and defined, it appears that it will also be applicable on cryptocurrency bought from an exchange not based in India,” Girish Vanvari, founder of tax advisory firm Transaction Square was quoted by the Economic Times.
The levy if made applicable to crypto assets may result in taxmen recognising crypto assets as goods or services. India is working on a legislation to regulate crypto assets and the industry is reportedly lobbying for SEBI as the regulator. In July 2020, it was reported that the U.S. Trade Representative (USTR) is investigating equalisation levy, which have been adopted or are under consideration in Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the U.K.
The India’s central bank continues its anti-crypto stance, with RBI Governor recently stating the central bank has “major concerns” regarding bitcoin and other digital assets. The G7 nations, this month agreed to back a new global minimum tax rate that companies would have to pay regardless of where they are based. The G7 proposal, which is similar to equalisation levy in India, would impose an additional tax on some of the largest multinational companies, potentially forcing technology giants like Amazon, Facebook and Google to pay taxes in countries where their goods or services are sold, notwithstanding the physical presence in that nation.