Miners, minors and developers join investors in seeking clarity over crypto tax

“I earned over Rs 50,000 last year in crypto through grants and programmes but prefer to take my salary in US Dollars. Many Web3 companies offer to pay salary both in crypto tokens and dollars and many choose crypto tokens,” said 23-year-old Yash Pandey (name changed on request). “The coins that I earn help me to learn and experiment with building new things.”

His company, like many others, works with developers around the world who prefer to earn in crypto tokens. “I worked with several developers in the last couple of years and they prefer to earn in crypto, for contributing to the Web3 space. Last year, I worked with over 100 developers who earned in lakhs but took the remuneration in crypto tokens,” he added.

“There is a lot of confusion at the moment around the new tax regime, and we are all looking for a lot of answers,” said Pandey.

Amid the hue and cry among the crypto investor community about the recently announced tax on virtual assets, these young professionals who work on decentralised projects, are also grappling with concerns around the recently imposed 30 percent tax on virtual assets.

Most of this workforce, including developers, freelancers and marketing professionals, prefers to earn in crypto. There are three modes in which they usually earn through tokens or virtual assets; from the revenue of the app itself (like a royalty); and grants from companies, which allow the developers to experiment and innovate, and raise funding from token sales.

Tax woes
For many, annual incomes in the form of crypto tokens are worth barely Rs 10,000 to 50,000. These developers and miners are concerned that a 30 percent tax on such low incomes could eat up a large share of their earnings.

Tax management and advisory platform ClearTax recently announced that it will now help customers to manage their cryptocurrency portfolio and taxes. The platform has been getting a number of queries from people earning in cryptocurrencies.

A spokesperson from ClearTax said: “There are a lot of developers and coders who take up international assignments and get remunerated in crypto tokens. The implementation of this taxation is something they do not fully understand. There have been many queries like: ‘Is this considered my income? What if I do not convert or spend that Bitcoin?’ So, the younger generation is quite conversant with how all of this is evolving. The questions we are getting are very new-age and there are no clear answers right now. There are a lot of grey areas.”

A lot of these developers and coders are also below the age of 18 years and are experimenting and engaging with projects, and now will come under the ambit of Income Tax.

“We are getting a lot of queries from minors. Most want to know the tax implications on crypto gains worth around Rs 10,000 to Rs 20,000. For minors who may have never have filed their own taxes, nuances have to be spelled out clearly,” said the spokesperson.

"In the case of minors, the Income Tax rules are very clear. It says that if a minor has earned using their own skills then they themselves can obtain a PAN Card and file their tax returns,” the spokesperson added.

Crypto miners are another group seeking more clarity. Mining is the process of generating new coins and verifying new transactions on a blockchain, which involves a lot of processing power and computers on the network. To put it simply, the miners maintain and secure the blockchain. In return, they are rewarded in cryptocurrencies for the mining.

“Miners have a lot of costs involved like electricity and cooling, so the cost of acquiring the coins is quite high. It’s not clear whether these costs would fall under the cost of acquisition, as per the Budget,” said Anoush Bhasin, a tax consultant who runs tax advisory firm Quagmire Consulting. In India, mining is already costlier than in other countries.

Power typically costs between 7-11 cents per kilowatt-hour in India, on average, each year, while in Kazakhstan power costs around four to five cents, making the country a preferred destination for crypto miners. The global average, too, is at 5 cents, according to data by the University of Cambridge’s Bitcoin Electricity Consumption Index (CBECI).

According to the latest data by CBECI, India’s average monthly hashrate share in August 2021 stood at a mere 0.05 percent. Hashrate is the measure of the amount of computational power used while mining and processing cryptocurrency transactions, in this case, Bitcoin.

The average monthly hashrate share of countries like the United States and Kazakhstan stood at 35.40 percent and 18.10 percent, respectively, in August 2021.
 Bhasin adds that these costs of acquisition are included in other categories as “Business Income” and accordingly the deductions are made while filing. However, that is not the case with virtual assets.

Experts add that such high costs and the additional tax would mean developers could look to move out of the country to more favourable regulations.

Another major concern among these developers and also traders is the 1 percent TDS that needs to be paid by the individual to the government. “How do you pay it when you do not know the entity itself?” asks Bhasin.

Most decentralised or Web3 projects do not have an entity and the work is done via one’s online identity and wallet address. In such cases, individuals working for these projects are not clear on whose behalf they will be paying TDS. To pay TDS, one needs details such as name and PAN number.

The same problem arises for developers and traders when they store their crypto assets in decentralised exchanges (DEX). Unlike centralised exchanges, no KYC is needed here and transactions are peer to peer.

Users connect their crypto wallet to a DEX, select their preferred crypto tokens, enter the amount, and transfer.

The experts add that the tax law needs to be more nuanced and the industry will be looking to hold consultations with the government.

Last week, netizens and crypto investors and enthusiasts started a petition urging the government to reduce the 30 percent tax on virtual assets. So far, 75,000 have signed the petition.

The petition starts by saying: “India has about 15-20 million crypto Investors and several lakhs of young Indians (with an average age of 17-27 years) who are part of the Industry and are actively engaged in the development and deployment of various services in crypto.”

It adds:“(The) Crypto Industry also contributes significantly to the country in the form of providing Employment, Bringing in FDI Investments, GST payments, and Income tax revenues to the government.”

India ranks second in terms of crypto adoption worldwide and is ahead of countries such as the US, the UK, and China, according to blockchain data platform Chainalysis’ 2021 Global Crypto Adoption Index.