LEGAL AND ENFORCEMENT CHALLENGES ON IMPOSITION OF TAX ON CRYPTOCURRENCIES

Abstract

The Finance Ministry introduced a flat 30% tax on any income generated from cryptocurrencies in 2022. However, there are multiple legal challenges which have been created due to the imposition of such a tax including lack of differentiation on the basis of the person holding the cryptocurrency, lack of differentiation on the basis of the time for which a cryptocurrency was held, legal ambiguity regarding taxation of mining of cryptocurrencies and lack of provisions for offsetting losses or carry forwarding losses to subsequent assessment year. There is further a regulatory lacuna in enforcement of such taxes imposed on cryptocurrency transactions. This paper delves into highlighting the legal challenges related to imposition of taxes on cryptocurrencies and further provides suggestions to tackle these challenges. It further attempts to suggest a feasible model to ensure effective enforcement of taxation of cryptocurrencies.