Cryptocurrencies and other crypto assets currently fall in a grey zone in terms of their tax jurisdiction. The assets have not yet been defined as a currency, commodity or asset class in India.

But the government is now holding discussions with senior tax advisors over whether the income earned from trading and investing in cryptocurrency and other assets could count as business income as against capital gains, reported Economic Times.

The government would be implementing the new change from this year onward, said two people involved in the proceedings to ET. The upcoming budget may have more clear definitions for income and long-term capital gain when it comes to crypto assets.

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The move is expected to significantly increase the tax burden on crypto investors, with the income tax on crypto being set as high as 35 percent to 42 percent, in line with other business income from capital gains.

"If the definition of income is changed in the tax framework then it could give leeway to the tax department to charge income tax on any gains accrued from investing and trading in cryptocurrencies. Some clarity as far as taxation is concerned is required around cryptocurrencies even if we don't have a framework in place defining the asset class," said Dinesh Kanabar, CEO, Dhruva Advisors, a tax advisory firm.

The government will also be ensuring that the changes are not going to affect other asset classes like equities and taking into consideration how to best calculate the tax returns for crypto investors.

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But while the Budget session may be ideal for the announcement of such changes, the government may take a 'wait-and-watch' approach as it observes measures that other major economies take for crypto regulation before committing to a path.

"There is no preparation for the bill; the government is waiting for the US policies to take shape, which are expected in the next 2-3 months. After the US releases its policies on crypto, India is expected to decide its way forward," one of the persons close to the development told ET.

(Edited by : Jomy Jos Pullokaran)