The government is aiming to clearly define the tax, income, and gains from cryptocurrency in the upcoming budget. Currently,  investment in cryptocurrencies is taxed under the capital gains tax regime and trading is considered as business income.

The government has reached out to senior tax advisors to decide whether income earned from trading or investing in cryptocurrencies could be treated as capital gains from this year onwards, according to a report by the Economic Times.

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The step could increase the tax burden on crypto investors as income tax on returns for investors or traders could be as high as 35% to 42%.

Indians whose crypto holdings have appreciated during the assessment period and who have traded them for other assets instead of converting them into fiat or INR will also face taxation.

Investors could be made to pay tax on returns from their crypto assets every time they sell them. They can buy another crypto asset from that money or cryptocurrency, ET reported.

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Apart from that, the government could also levy 18% goods and services tax (GST) on crypto trading and the amount could be borne by the buyers if the exchange decides to pass it on to them.

Individuals could be taxed at 18% and companies dealing in crypto can show their crypto investments in the other income bracket.

In the long-awaited crypto legislation, the government is planning to define cryptocurrencies as a commodity. The new draft bill will also categorize the virtual currencies based on their use cases.

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“There is no preparation for the bill; the government is waiting for US policies to take shape, which is expected in the next 2-3 months. After the US releases its policies on crypto, India is expected to decide its way forward,” a person aware of the development said.

When it comes to cryptocurrencies, there is no clarity on direct tax or indirect tax because these are not yet defined as currency, asset, commodity or service.