Detailed Explanation of India's Encryption Asset Taxation and Regulatory Policies

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, much 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 by 2030. However, India also faces significant imbalance issues, with a large discrepancy between total GDP and per capita GDP, a severely skewed economic and industrial structure, and stark disparities in the standard of living among regions.

2. Overview of India's Basic Tax System

2.1 Indian Tax System

The Indian tax system is established based on constitutional provisions. The authority to levy taxes is primarily concentrated between the federal central government and the states, while local municipal governments are responsible for a small number of tax types. The taxes levied by the central government include two main categories: direct taxes and indirect taxes. The Indian tax system is mainly managed by the Indian Revenue Service.

2.2 Corporate Income Tax

Enterprises should pay corporate income tax on their income. A resident enterprise refers to an enterprise that is registered in India or whose actual management is located in India. Taxable income is divided into four categories: operating profit, property income, capital gains, and other source income. The basic corporate income tax rate for domestic enterprises is 30%, and some enterprises are subject to specific preferential tax rates.

2.3 personal income tax

Residents of India are required to pay taxes on their income worldwide. Personal income is taxed at progressive rates. The individual income tax for residents adopts a classified comprehensive tax system, implementing progressive tax rates. Non-resident taxpayers must pay withholding income tax at the same rates as resident taxpayers.

2.4 Goods and Services Tax

Since July 1, 2017, India has implemented the Goods and Services Tax (GST)) reform. Currently, there are four basic tax rates for the Goods and Services Tax, which are 5%, 12%, 18%, and 28%. In addition, there are two tax rates of 0.25% and 3% applicable to a small number of goods.

3. India's encryption asset tax system

3.1 Overview of India's encryption tax

Starting from April 1, 2022, a tax rate of 30% will be levied on profits obtained from trading encryption currency. Additionally, from July 1, 2022, if the encryption transactions exceed RS50,000 within a fiscal year, a 1% Tax Deducted at Source (TDS) will be imposed 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 encryption transactions using cryptocurrency, and using cryptocurrency to pay for goods and services. In certain cases, such as receiving cryptocurrency as a gift or mining encryption currency, taxes will be paid according to individual income tax brackets.

3.3 Source Deduction Tax (TDS)

Investors are required to pay a 1% source deduction tax for the transfer of encryption assets. TDS applies to transactions after July 1, 2022. When trading on Indian exchanges, TDS is deducted by the exchange and paid to the government.

3.4 Tax regulations related to loss and theft

It is prohibited to use losses from encryption currency to offset gains from encryption currency or other gains. The Indian Income Tax Department has not yet provided clear guidance on lost or stolen encryption currency.

4. Overview of India's Encryption Asset Regulatory System

The Indian encryption industry is going through a period full of uncertainty. The Indian encryption bill is seen as a potential game changer, but its contents remain unclear. There are differing views within the Indian government regarding the regulation of encryption.

Some Indian cryptocurrency exchanges have implemented strict KYC procedures and collaborated with law enforcement agencies to prevent illegal activities. India has taken steps to impose some form of oversight on the industry, primarily through taxation and anti-money laundering measures.

In 2024, Binance announced that it has successfully registered as a reporting entity in India, marking an important turning point in the regulation of cryptocurrency in India.

5. Summary and Outlook of India's Encryption Asset Taxation and Regulatory System

India has not yet established a comprehensive regulatory framework for encryption assets, but it has begun preliminary management through taxation measures. Looking ahead, as the global encryption market develops, the Indian government may introduce more refined regulatory policies. International participants such as Binance successfully registered as an Indian reporting entity, demonstrating their willingness to adapt to the local regulatory environment, which may encourage the government to formulate more detailed guidelines, thereby achieving a balance between financial security and innovative development.