How to pay tax on crypto gains if you are an NRI
Non-Resident Indians (NRIs) who have invested in crypto-assets are likely to face problems in filing their Income Tax Return (ITR) this year, due to the ambiguity surrounding certain tax provisions.
The Finance Act 2022 had introduced a new fixed rate of 30 per cent on income arising from the transfer of virtual digital assets (VDA) or crypto-assets, with effect from the assessment year 2023-24.
This means that every transaction involving the transfer/sale of VDAs on or after 1 April 2022 is covered by this new tax regime.
The Indian taxation of crypto gains is based on the principle of the person’s residence and source of income. Worldwide income of Indian residents is taxable in India.
However, NRIs are subject to source-based taxation, which means that only amounts received or accrued from a source, or deemed to accrue or arise in India, are subject to income tax in India.
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Let’s look at different scenarios to see how crypto gains are taxed for non-resident Indians.
Buy and sell on foreign crypto exchanges
Experts say that if an NRI buys and sells crypto assets in a foreign currency, the said income will not be taxed in India since it is not generated or received in India.
“But the NRI will be taxable in his current country based on current tax laws,” said Punit Agarwal, founder of KoinX, a crypto taxation platform.
Experts also note that an NRI is not required to report this income in his ITR.
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“However, we need to check the residential status of the NRI for the year under discussion. If the NRI becomes a tax resident for that year, he/she is liable to pay tax on the global income and any crypto gains made outside India through a platform or medium become taxable in India, says Archit Gupta, founder and CEO, Clear.
Buying and selling on Indian stock exchanges
If an NRI buys and sells crypto from an Indian exchange and the proceeds are withdrawn to an Indian bank account, the income will be said to arise in India and is taxable at 30 percent.
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“Filing an income statement will be mandatory in such cases,” Agarwal said.
According to Gupta, the NRI has to file Form ITR-2 or another form based on what other income the said person has earned.
If the residential status of the investor changes
Tax provisions get a bit confusing if an Indian buys crypto, moves abroad and becomes an NRI.
KoinX’s Agarwal believes that the tax department has not currently provided any guidance on how taxes will work if the residential status of an investor changes.
“However, since VDAs are intangible assets. The location of the taxpayer will determine which country has the right to tax the income, with respect to the DTAA. It has been decided in various court decisions that in the case of intangible assets, the location of the asset is the same as the owner. So if a taxpayer sells his VDAs after becoming an NRI, the income may not be taxable in India, he said.
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However, Clear’s Gupta is of the opinion that if the income is deemed to be earned in India, then the said crypto becomes taxable in India, even if the residential status is changed to NRI.
“Also, since the trade has been done through an exchange, the transactions will be liable to tax deducted at source and the NRI will be obliged to report it in the Indian ITR,” he said.
Further, Naveen Wadhwa, Deputy Chairman of Taxmann, says that to determine whether the income arising to a non-resident from the transfer of VDAs is taxable in India, one needs to identify the “situs” of the VDA, among other factors.
For legal jurisdiction or tax purposes, situs means the place to which a property belongs.
“Currently, the Income Tax Act does not contain any explicit provision to identify the location of VDAs. In the absence of any provision in the Act, the location of the intangible property can only be determined on the basis of the domicile of the owner of such property. And if the owner of the intangible the property is not resident in India, income on the transfer outside India cannot be taxed in India, Wadhwa said.
