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Assets Issued to Employees by Indian Crypto Bourses under Taxman’s Lens

Cryptocurrencies or digital assets issued to employees by crypto exchanges as incentives are set to come under the taxman’s lens.

The question is whether the coins – most of them issued by Indian exchanges – can be construed as income and what could be the incomes tax applicable on the digital assets.

Many exchanges have rolled out their own tokens and offered these as part of their employees’ annual income – along the lines of employees stock ownership plan or ESOP. In some cases, it was also linked to employee performance.

Tax experts say while the arrangement may look similar to an ESOP; it will not be treated as one under the tax laws.

“Cryptocurrency or coins given to employees are nothing but salary and shouldn’t be equated to esops as these have liberal interpretation and leeway when it comes to income tax,” said Sudhir Kapadia, national leader-tax, EY India. “These coins should face normal income tax, too, on their actual market price in the year the employee received them.”

This could mean that the tax department would tax these coins in the year as per their market value.

Over the last two years, the value of these coins has gone up substantially, along with other established cryptocurrencies such as Bitcoin and Ethereum.

Industry trackers say issuing tokens as incentives to employees is gaining popularity among startups and crypto exchanges.

“Token incentives are attractive to the employers as it doesn’t dilute their shares and is also quite popular among the employees since the tokens could significantly increase in value,” said ‘Praveen Kumar, CEO at Belfrics Global, a cryptocurrency exchange. “Due to the smart contract capability of crypto assets, multiple structures and combinations can be achieved to issue restricted and non-restricted tokens.

When startups use their project tokens for employee compensation, many of the crypto exchanges tokens for the said purpose.”

Tax experts say the income tax, however, will only be triggered in the year when the employee actually gets the money.

“Of courage, if there is an element of deferred compensation as per contract, then the incidence of taxation will be shifted to a future date depending upon the contractual terms,” said Kapadia. S-ET

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