Guide for Taxation on Freelancing earning received in Crypto

 

Today you will be reading about the how Freelancer should take care of from Tax Compliance point of view if the remuneration / Salary is received in Crypto asset 

Now a days blockchain companies are getting funded directly crypto assets with stable coin like USDT,BSUD etc. In 2021 alone VC's have invested more than $33 billion in blockchain companies. This can be in form of traditional investment in fiat(Dollar) , investment in form of native token sale (eg. Polygon has raised around $450 million via token sale - MATIC ) or investment in stable coins.

Now these blockchain companies are looking for skilled workforce across the world and pay the salary / remuneration in the form of token / crypto.  

Now the question is how will the Income tax will levied in India on the contract income they received in Crypto assets

You can also read the taxation for freelancer if they receive their salary in traditional fiat here

Crypto Token are received into the wallet / exchange and these tokens are liquidated or sold in an Indian exchange for INR

Income tax Implication : 

Finance Act 2022 has enacted crypto taxation u/s 115BBH @ 30%. Read with 115BBH crypto token or VDA (Virtual Digital asset) received as salary will be directly charged 30% at the time of receipt into their wallet / exchange. This is irrespective of whether you have withdrawn into your bank account. 

At the time of liquidation or sale of these token the difference amount will be taxed

example : Mr A got 1000 USDT into his exchange wallet when USDT/INR was trading at INR 77. Entire amount of INR 77,000 will be taxed at the time of receipt into your wallet. Now Mr. A holds it for some time and sell 1000 USDT for INR 78. Now INR 1000 will be taxable at the time of withdrawal

You can also read the taxation for freelancer here .In comparison to normal freelancer received in fiat , in current case of crypto freelancer

1. Cannot claim any deduction or exemption since 115BBH  does not allow the same
2. Presumptive taxation u/s 44ADA is also not applicable since 115BBH is applicable where special rate of 30% is directly applied

GST Implication : 

(Kindly note GST is applicable only if you are working on contract basis. If you are working on Employment agreement then GST will not be applicable)

Freelancer receiving Fiat where services provided oversea and receipt of money in convertible foreign exchange , such taxpayer can claim the benefit of zero rated supply option. i.e Freelancer can export service with 0% GST by filing LuT and filing Quarterly / monthly GST returns

However in case where remuneration is being received in Crypto which is not a convertible foreign exchange , you will have to go without LuT option i.e You will have to pay 18% GST and later apply for refund of the same

Conclusion : Freelancer receiving their remuneration in crypto are at a significant disadvantage both from Income tax and GST Perspective. 

How do you solve this problem ? Here is is my suggestion on planning this

1. Instead of selling the crypto tokens in a centralized exchange you can use the Binance P2P or other P2P platforms to liquidate your crypto tokens

2. You should sell your crypto token in P2P platforms where buyers should be from overseas are ready to pay you using platform like Paypal , Transferwise , wire etc

3. Receiving the amount in Paypal , Wise will solve your both Income tax and GST Problem

4. Income tax : You can show case that the amount receiving your Paypal / Wise account is for the services rendered to your oversea client and received the amount in fiat , thereby you will enjoy the benefit of Section 44ADA presumptive taxation where you can claim 50% deduction on your gross receipt

5. GST : Since you are receiving the money in convertible foreign exchange (You can request for FIRC certificate from platform like Paypal / wise ) you can enjoy the benefit of zero rated supplies, thereby reducing the tax outgo of 18% on your gross proceeds 

For a freelancer earning around Rs 50 lakhs above planning will help you in reducing the tax outgo of atleast around 18 lakhs in form of GST and Income Tax

You can contact us for any assistance required in planning these cases