Cryptocurrencies or digital assets issued to employees by crypto exchanges as incentives are set to come under the taxman's lens.

The question is whether the coins - most of them issued by Indian exchanges - can be construed as income and what could be the income tax applicable on the digital assets.

Many exchanges have rolled out their own tokens and offered these as part of their employees' annual income - along the lines of employee stock ownership plan or esop. In some cases, it was also linked to employee performance.

Tax experts say while the arrangement may look similar to an esop, it will not be treated as one under the tax laws.

"Cryptocurrency or coins given to employees are nothing but salary and shouldn't be equated to esops as these have liberal interpretation and leeway when it comes to income tax," said Sudhir Kapadia, national leader-tax, EY India. "These coins should face normal income tax, too, on their actual market price in the year the employee received them."