Digital currency issued as incentives by crypto exchanges may involve tax complications
Bitcoin Currency Coin Crypto Cryptocurrency

These days, many people are looking to get a part, and sometimes all of their salaries are to be paid in digital coins. Many crypto exchanges have offered cryptocurrencies or digital coins as incentives to their techies. Such incentives in the form of cryptocurrencies or digital coins may involve tax complications and come under the vigilance of tax authorities. 

So far, there is no law for crypto taxation in India, and hence, the earned income can be interpreted in various ways, making its taxation complicated. Further, many exchanges are offering their own tokens as part of their employee’s annual salary in the form of a performance-linked bonus or as an ESOP component. However, tax experts say that though the deal seems like an ESOP, it will be treated as regular salary income for tax purposes.

Tokenised ESOP allows for a liquid asset position, thanks to which employees can make money before the exit, simply through trading of vested options on exchanges. 

Employees will usually be liable for normal income tax due on their cryptocurrency wages, calculated on their value when the salary is paid. However, 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.

Income arising from cryptocurrency could be capital gains or business income depending upon the trade volume and nature of the transaction. However, the government is expected to clarify the tax treatment of cryptocurrencies in the upcoming budget.

From the employer’s point, it’s all a business strategy. But employees must be aware that there’s no guarantee in holding cryptocurrency since there’s no intrinsic value as there’s nothing to back it up. 

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