Taxation of Cryptocurrency: The Indian Faux Pas

The exponential growth that the cryptocurrency market has seen in the past decade has caused much discomfort among governments across the globe, owing to the unregulated nature of transactions and what some may argue is a disproportionate impact of the crypto market on domestic economies. The natural response of most jurisdictions has been to tax cryptocurrency transactions so as to discourage them while also gaining revenue out of them. However, taxation policies face complex questions of determining the true nature of crypto transactions, a question that is yet to be answered with clarity.

The knee-jerk reaction that the industry has attracted from the Indian government in particular has materialised in the form of imposition of a virtual digital assets tax on cryptocurrencies. The authors argue that this policy failed to effectively address its objective and only resulted in a sudden downfall of the crypto market in India, creating negative repercussions for the domestic economy. The authors then employ a game theoretical analysis to propose an alternative taxation framework that recognises the significance of the crypto market and better balances the need for its regulation. Further, they discuss frameworks from a range of external jurisdictions to analyse the expected implications of similar policies in the Indian economy.

Keywords: cryptocurrency, taxation, game theory, virtual digital asset

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