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Budget 2022-23 may levy TDS, TCS on crypto trading

This budget may bring both sale and purchase of cryptocurrencies under the ambit of reporting in the statement of financial transactions

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The government could consider in the upcoming Budget levying /TCS on sale and purchase of cryptocurrencies above a certain threshold and such transactions should be brought within the ambit of specified transactions for the purpose of reporting to income tax authorities, Nangia Andersen LLP Tax Leader Aravind Srivatsan said.

Also, a higher tax rate of 30% should be levied on the income arising from the sale of cryptocurrency, similar to winnings from lottery, shows, puzzle, etc, he said.

On what the Budget 2022-23, to be unveiled by the government on 1 February, could have in store for the crypto industry in India, Srivatsan said currently, India has the highest number of crypto owners globally, at 10.07 crore and as per a report it is expected that the investment by Indians in could touch $241 million by 2030.

“A bill was expected to be presented during Winter of the parliament to regulate cryptocurrencies. However, it was not introduced, and it is now expected that the government may take up this bill in the Budget Session. If the government does not prohibit Indians from dealing in cryptocurrencies, we expect that the government could introduce a regressive tax regime for cryptocurrencies,” he noted.

He said considering the size of the market, the amount involved, and the risk coupled with cryptocurrencies, certain changes may be brought in the taxation of cryptocurrencies like bringing them under the provisions of tax deducted at source (TDS) and tax collected at source (TCS) above a threshold limit which will help the government get the “footprints of the investors”.

Both sale and purchase of cryptocurrencies should be brought under the ambit of reporting in the Statement of Financial Transactions(SFT).

The trading companies already do similar reporting of sale and purchase of shares and units of mutual funds, he said.

To keep a watch on high value transactions undertaken by the taxpayer, the Income-tax law has the concept of SFT or reportable account.

This helps tax authorities to collect information on certain prescribed high value transactions undertaken by any person during the year.

Financial institutions, companies and stock market intermediaries fall within the purview of SFT reporting. Srivatsan said similar to winnings from lottery, shows, puzzle, etc., a higher tax rate of 30% should be levied on the income arising from the sale of cryptocurrency.

Ahead of the winter of the parliament which ended of 23 December, the government had listed for introduction a bill on regulating cryptocurrencies. The bill comes amid concerns over such currencies being allegedly used for luring investors with misleading claims.

Currently, there is no or any ban on use of cryptocurrencies in the country.

The ‘Cryptocurrency and of Official Digital Currency Bill’ is now expected to be introduced in the Budget of the parliament beginning 31 January.

Separately, the government is mulling changes in income tax laws to bring cryptocurrencies under the tax net, and some changes that could form part of the 2022-23 Budget.

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