top of page

Taxation of Crypto-Assets


The advancements in the global world are moving at a rapid speed leaving behind all those who couldn’t catch up. From highly sophisticated AI to hydrogen-based vehicles, the technological world is expanding, creating the need for more regulations that could keep up with such developments. One such development which has created turmoil in the international market is Crypto-assets. Crypto-assets can be understood as assets that exist only in a digital world without any physical form whose value is entirely based on demand and supply. Since crypto-assets are themselves an entirely new domain with the potential to cause major disruptions if not monitored, it becomes essential to analyze the nature of these assets and then understand the Taxation of these crypto-assets. The following article throws some light upon the classification of crypto-assets and the general taxation principles applied to them across the globe at various taxable events.


Before moving on to taxation, determination of the nature of crypto-assets is essential to categorize the asset and levy tax accordingly. A clear and comprehensive definition that may be internationally accepted has not been formed yet but generally based on different properties that the different crypto assets may have, they have been categorized into currency, financial instrument, intangible asset, and property for determination of the nature. However, for accounting purposes, all crypto-assets may be considered as ‘intangible assets’ or ‘other assets.’

OCED in its report[1] categorizes the crypto-assets as

  1. Payment Tokens - Usually known as virtual or cryptocurrency such as Bitcoin and used in place of fiat currency for making payments.

  2. Security Tokens - Held for investment purposes and can be understood as tradable security or intangible asset/property which is held for future expected capital gains.

  3. Utility or Consumer Tokens - Generally used as vouchers for the exchange of goods and services.[2]

Taxation at creation

Based on the above categorization, the taxation of crypto-currency differs as we move across categories and taxable events. The first major taxable event for any asset/income is considered to be its creation by most countries.[3] Since crypto-assets are not in physical form at any point in time, their creation in hands of the owner is treated, as and when, they are mined or received. At the point of creation, the crypto-assets irrespective of their category can be considered as income earned or assets purchased. If the assets were earned/gained, by whichever medium, like mining (which is solving complex equations) or receiving compensation in virtual currency, it is usually treated as income and is subjected to income tax in most of the countries. The category under which it may be taxed, however, varies across jurisdictions. Some countries like Japan[4] may consider it as miscellaneous income while others such as the US[5]may consider it as business or capital income depending on the taxpayer and his objectives. However, if it’s purchased from fiat currency or even other virtual currency, it is not usually taxed at the point of creation. The assets may be received as a gift or given free by companies (which is usually referred to as airdrop) which can be considered neither as income nor as asset purchased, so the taxation of this varies a lot in different countries. In some countries, it may be taxed at the point of receiving like Japan[6] and the US[7] while in some countries it may be taxed at disposal. In some countries like Germany[8], it is not even taxed.

Taxation for Transactions

Moving on to the next taxable event which is transactions. Like every other asset, crypto-assets also shift ownerships and are used in transactions. From the perspective of transactions, taxation may be direct or indirect. Direct tax is not usually levied on transactions or holding of the crypto-assets. For indirect tax, transactions need to be divided according to what is exchanged to determine the taxation. If fiat/virtual currency is exchanged for virtual/fiat currency, most countries don’t levy indirect tax on the same. Even though virtual currency is still not considered as currency, for indirect tax purposes, it is treated as one by some countries like the EU[9]. It must be noted that the exchange of currency from fiat to virtual or vice versa is considered as a taxable event by most countries even though no direct tax is levied on the transaction itself and no indirect tax rate has been prescribed as of yet. If the crypto-currency or asset is being exchanged for some other goods/service, the tax rate for those goods/services shall be applicable. In most countries, no indirect tax rate is provided for the exchange of crypto-assets as that would complicate the taxation process. It must be noted that most countries levy tax on ancillary activities related to crypto-assets such as transaction service, broker service, and wallet service.

Taxation at Disposal

The last taxable event in this chain would be disposal/sale. It must be noted that several countries treat disposal as the first taxable event and the income from disposal of the assets is taxed under head of capital gain or business income, depending on the nature of the transaction, while not being taxed when it is first received/earned. Some countries treat the assets as stock-in-hand just like any other inventory item which is created or received and the real value would be realized only at the time of sale, thus taxing it at disposal. Crypto assets are disposed of by converting them to fiat currency, goods/services, or other virtual assets. As discussed above, usually no indirect tax is levied if crypto-assets are disposed of. However, direct tax in form of capital gains may be levied on the same. Irrespective of the category of the crypto-assets, capital gain earned on the transfer of capital assets shall be subjected to income tax in most countries. It must be noted that there are a lot of countries that do not consider disposal to be a taxable event.

Further, it must be noted that Crypto-assets are considered as property by many countries such as the UK[10], the US[11] for an inheritance, gift, wealth, and other such purposes while others like Germany[12] take a liberal approach by not taxing the same. Apart from above mentioned taxable events, loss or theft may also be considered as a taxable event. Some countries allow it to be considered as a loss under income tax while others do not acknowledge such loss.


Another aspect of taxation would be the valuation of the crypto-assets on which tax is to be levied. Most of the countries consider it to be the market value. However, even that is difficult to calculate due to the low number of transactions, high volatility, no physical form or actual value, and difficulty in identification of batch. So, this area is still an emerging issue for major countries.

Taxation in India

No clear guidelines in this regard are available in India and current income from Crypto-assets is determined by considering it similar to normal assets. If it’s earned as income, it can be taxed as business income or other income or even income from speculation (depending on nature of transaction) at the creation which would be the first taxable event. Since no GST rate is available as of now, no indirect tax is levied on the transaction itself but may be levied on the ancillary services like transaction fee which would be a service under GST. At disposal, capital gains from the transfer may be taxed under the head of capital gain either long term or short term depending on the duration of holding. Since clarification is not given by the government, it would be safer to consider it as income and levy tax accordingly. It is also advisable to disclose the assets in the balance sheet which is compulsory for companies owning Crypto-assets as per the latest notifications[13].


The world is adapting to rapid changes by accepting them and making sure that they don’t go unregulated. To ensure this, most countries have either made laws or issued guidance on crypto-assets and their taxation. The regulations are different in almost all countries but some of them have indeed shown acceptance to the new way of transactions while others are still either ignorant or unapproving. India is a little behind in this field as no clear guidance or government stand on the issue is available yet. Even though general principles of taxation may apply in India for tie being, clear rules on the same are much needed as their absence could be detrimental to tax revenue and the financial framework of the country.

It must be noted that the taxation of Crypto-assets which is clarified above is based on generally followed taxation regulations on crypto-assets across various countries. The above brief is only for general understanding. To determine the regulations in any particular country, domestic laws must be given due consideration.


  1. Taxation on Cryptocurrency, ,(Last Updated on 17th September 2021)

  2. Harsh Bhuta et al, Hold crypto assets? Here's how you are going to pay income-tax on it

  3. ,(Last updated on 6th June 2021)

  4. Naina Bhardwaj, What are the Tax Implications for Cryptocurrency Assets in India?, ,(Last updated on 20th July 2021)

  5. Et Now digital, Cryptocurrency investors rush to tax experts to get clarity on taxation, ,(Last updated on 18th November 2021)

  6. Rahul Jagdish & Prasad Surekha, Taxation (GST and Income Tax) on Crypto currency like Bitcoin? ,(Last updated on 18th June 2021)

  7. Simmons, Crypto-assets: taxation of businesses ,(Last updated on 4th November 2019)

  8. Mimansa Verma, How will India tax cryptocurrency investments?, , (Last updated on 8th September 2021)

  9. Shishir Sinha, Govt mulling levy of I-T, GST on cryptos; Bill in Winter Session, ,(Last updated on 8th November 2021)

  10. Archit Gupta, How should cryptocurrency be taxed in India? Here are some thoughts, ,(Last updated on 28th June 2021)

Footnotes [1] OECD (2020), Taxing Virtual Currencies: An Overview Of Tax Treatments And Emerging Tax Policy Issues, OECD, Paris,(herein after OCED Report) [2] OECD Report, Supra Note 1 at 12 [3] OECD Report, Supra Note 1 at 24 [4] Japan Crypto Tax Guide 2021, [5] IRS, FREQUENTLY ASKED QUESTIONS ON VIRTUAL CURRENCY TRANSACTIONS, (Last updated on 04th June 2021), [6] Supra Note 4 [7] Supra Note 5 [8] Germany Crypto Tax Guide 2022, (Last updated on 18th May 2021) [9] OECD Report, Supra Note 1 at 34 [10] The Ultimate UK Crypto Tax Guide 2022, (Last updated on 12th November 2021) [11] Supra Note 5 [12] Supra Note 8 [13] Govt. of India, Ministry of Corporate Affairs, Notification dated 24th March 2021

Submitted by,

Sakshi Garg,

Campus Law Centre, Delhi University


bottom of page