I have been living and working in the United Arab Emirates for five years. I trade cryptocurrencies locally and have my cryptocurrency balance in my private wallet. A person in India asks me to buy Ripple and Etherium on a P2P basis and the proceeds will be transferred to my NRO (non-resident regular account). Will this transaction attract any tax for me in India?
— Name withheld upon request.
Indian exchange control law does not specify whether a resident can purchase cryptocurrency from a non-resident on a P2P basis and then transfer the sale proceeds to the non-resident’s NRO account. Moreover, banks may also refuse to allow repatriation outside India knowing that the source of funds is from the sale of cryptocurrency.
Leaving aside aspects of exchange control law, under Indian tax law, income earned by a non-resident is taxable in India only if it is accrued or arises in India, is received or deemed to accrue in India, or is deemed to accrue or arise in India.
If you accept an offer from an Indian buyer outside India and also transfer cryptocurrencies from your private wallet while outside India, then the income will accrue outside India. This is because in a transaction involving uncomplicated purchase and sale, income usually arises at the place where the sale contract is concluded and also at the place where the sale is made. In the case of a P2P transfer, the transfer is made after entering the appropriate recipient’s wallet address. Although the accrual of income may not take place in India as the payment would have been received in India, the income would be taxable in India on the basis of receipt in India NRO account. There is no need to further investigate the alleged accrual aspect of your case, which depends on the location of the cryptocurrency.
The special provision of TDS (Tax Deducted at Source) for transfer of Virtual Digital Asset will not be applicable in your case as you are a non-resident. If you are holding cryptocurrencies as long-term investments and not as traded shares, then the resident buyer will have to deduct TDS at the rate of 20% (plus applicable levy and tax) from the amount of capital gains earned on the sale of such cryptocurrencies.
Conversely, if you hold it as traded shares or as a short-term capital asset (holding period less than 3 years), then the resident buyer is liable to deduct TDS at the rate of 30% (plus applicable surcharge and tax) from the profit earned on the transaction sales.
A possible tax on profits derived from the sale of cryptocurrencies would be imposed at a rate of 30% (plus applicable fees and duties) regardless of the classification of the holding as an investment or trading stock. Moreover, apart from the purchase cost, you will not have any expenses such as network fees etc.
If you qualify for the India-UAE Double Taxation Avoidance Agreement (DTAA), you should opt to fall under the DTAA provisions as they are more favorable in this case. Capital gains derived by a UAE resident from the sale of cryptocurrencies are not taxable in India under the DTAA, just as business profits (in the absence of a lasting establishment) are not taxable in India under the DTAA.
Harshal Bhuta is a partner in the licensed accounting firm PR Bhuta and Co.
Posted: Jun 03, 2024 16:39 EST
