Can you avoid 30% crypto tax by buying tokens on a foreign exchange? Here’s what legal experts say

Even if you buy or sell crypto on exchanges located outside India, you are required to report your income to the tax department.

crypto exchange
No way to avoid crypto tax. Representative image

How to avoid paying 30% tax on crypto income in India? This is probably one of the biggest questions on the minds of Indian crypto investors ever since the announcement of flat 30% tax on income from crypto and other virtual digital assets (VDAs). Many investors are still looking for tricks to avoid tax. In quest of saving tax, they are falling prey to many so-called experts. One of such tricks being shared by these so called experts is that you can avoid 30% tax by investing on foreign exchanges. 

However, legal experts say you cannot avoid paying 30% tax on crypto income by investing on foreign exchanges. It is important to understand that 30% tax is on the income Indian investors may make from crypto or other VDAs. This has nothing to do with the location or origin of the exchanges. 

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“While major crypto exchanges are located outside India, the new 30% tax regime introduced vide Finance Act, 2022 must not be confused with a tax on exchanges. It is a tax on the income of trader. Thus, in my view irrespective of the location of the exchange, income would be chargeable to tax for the reason that the taxable event is the profit earned through crypto trading for assessees in India. The provision is jurisdiction neutral and would not matter whether profit is earned in a local or a foreign exchange,” Sameer Jain, Managing Partner at PSL Advocates & Solicitors, told FE Online. 

What if Indian exchanges move abroad?

The stringent crypto tax regime is forcing many Indian crypto exchanges and companies to move their bases to places like Dubai or Singapore as they provide crypto friendly tax regime. However, Indian investors should be aware of the fact that 30% tax announced by the Government of India is not on the basis of the location of the exchange. The rule is simple: If you make income, you pay tax. 

“Investors must bear in mind that tax regime imposed in India is not based on the location of the crypto exchanges. Any crypto exchange providing service to the Indian Customers having their base outside India would not exempt the Indian Investors from tax regime as it is irrespective of location where the crypto exchange trading is done,” Utsav Trivedi, Partner at TAS Law, said. 

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Rishi Anand, Partner at DSK Legal, said it is unlikely that the Indian investors would get any relaxation or exemptions from tax implications even if the crypto exchange on which they are trading moves its business outside India.  

“The proposed tax regime on crypto is agnostic of location of such crypto exchange, and until further clarifications from the government, tax would be levied on funds or any gains repatriated to India on sale of any crypto by an Indian resident,” Anand said. 

Not paying tax = Tax evasion

Even if you buy or sell crypto on exchanges located outside India, you are required to report your income to the tax department. Experts say that not paying tax on any such income would be equivalent to tax evasion and may complicate your life due to legal hassles. 

“It is wrong to say say that people may avoid the 30% tax by trading on International exchanges using crypto. This shall be an attempt of tax evasion, as seen by concerned departments/authorities. The said transaction shall fall under Section 115AD of the Income Tax Act, 1961, as per facts of each case, hence it is better to be alert than to be sorry later,” said Anushkaa Arora, Principal and Founder, ABA Law Office.

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First published on: 09-04-2022 at 13:15 IST