The Narendra Modi government has done what governments tend to do: Bring every free domain under its control. Finance Minister Nirmala Sitharaman said during her speech enlisting the proposals for Budget 2022-23 that the government had taken a conservative stand on taxation of crypto assets by announcing a flat 30% on income from such income. Income from cryptocurrencies will attract also a 1% tax that will be deductible at source (TDS). Surprisingly, the crypto industry and experts welcomed this tax regime.
Sitharaman said that 30% tax would be charged on income from a transfer of virtual digital assets. She said further that the government would allow no set off in case of losses. Moreover, the state will tax gifts in virtual digital assets in the hands of the recipient.
But there was no negative impact on the prices of most of the popular crypto tokens including Bitcoin, ETH, WRX, SOL, ADA, DOGE, MATIC listed on Indian exchanges.
Noting the phenomenal increase in transactions in “virtual digital assets”, the finance minister said the magnitude and frequency of these transactions had made it imperative to provide for a specific tax regime. “Accordingly, for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30%,” the finance minister said. Sitharaman said the government would allow no deduction in respect of any expenditure or allowance while computing such income except the cost of acquisition. The loss from the transfer of virtual digital assets cannot be set off against any other income.
Further, Sitharaman proposed to provide for TDS on payment made in relation to the transfer of virtual digital assets at the rate of 1% of such consideration above a monetary threshold. A gift of virtual digital assets has been proposed to be taxed in the hands of the recipient too.
The finance minister talked of introducing by 2023 a Blockchain-based and RBI-backed Central Bank Digital Currency (CBDC).
“The clarity on the tax of digital assets is long overdue and was expected to be provided this year. The announcement of tax at the rate of 30% on the digital assets, coupled with the government launching its own digital currency, is an indication that the government intends to discourage the same and would intend that only the HNIs make such investments and that the government shall not permit cryptos as currency,” a partner at DVS Advisors LLP, Sundara Rajan TK, said.
Experts of and investors in cryptocurrencies had, before today’s budget announcements, expected clarity on taxation of gains from crypto assets. Some experts believed that Sitharaman might not touch upon cryptocurrencies directly in her speech barring some announcements related to tax on digital money.
As per Principal Economic Adviser Sanjeev Sanyal, the government was expected to take a balanced view of cryptocurrencies. Curiously, the Economic Survey 2022 tabled in the parliament yesterday was silent on cryptocurrencies or Blockchain. It remains improbable that the Cryptocurrency Regulation Bill will be introduced in the parliament in the current budget session.
“As you know, this is a matter of some debate, both inside the government, in the Ministry of Finance, and even in Parliament. So, this is something that is currently in discussion… There are some financial stability issues. But there are also other arguments that are made in terms of innovation and so on… obviously, a balanced view on this will be taken,” Sanyal said.
The ecosystem of cryptocurrencies has welcomed Finance Minister Sitharaman’s proposal for a 30% tax on digital assets for legitimising bets on the assets considered as very risky by the RBI, even as a law on regulating such activity is awaited.
The tax on income generated at the sale of any digital asset without any deductions was proposed amid a growing proliferation of assets like Bitcoin even as the regulatory structure on them remains unclear. “India is finally on the path to legitimising the crypto sector in India,” founder and chief executive of crypto exchange WazirX, Nischal Shetty, said.
Rishad Manekia, the founder and MD of Kairos Capital, said the taxation along with the introduction of an Indian CBDC in 2022 gives a much clearer idea about the way forward for the blockchain ecosystem in India and how the government is thinking about this space.
Managing Partner, TMT Law Practice, Abhishek Malhotra, said, “Cryptocurrency has been brought into the tax net of 30% which is a welcome move, as the same does not seem to be subject to a complete ban anymore. Further, as gains from its trading will also be taxed now, this will bring in some faith in the investors. The proposal to start digital rupee by 2022 or 2023, only indicates that the government is abreast of the changes taking place around the world and will take lead in granting approvals and investments. This also gives assurance to individuals that digital currencies will not be outlawed.”
“The government seems to be approaching the crypto space with a comprehensive understanding while keeping in mind the P2P nature of crypto as they’re considering taxing the transfer of digital assets. While we eagerly wait for the crypto bill, we expect positive and well-thought regulations going ahead, which are strongly needed for consumer protection.UPI and Aadhar are groundbreaking, world-renowned finance and governance initiatives. We hope for the same from Indian crypto regulations,” said Mr. Roshan Aslam, the CEO and one of the co-founders at GoSats.
“The taxation on profit generation from crypto investments is a welcome move as it legitimises the assets and its operations. We should be expecting follow-up guidelines very soon on regulating the crypto assets operations from RBI and SEBI. The TDS on the transfer of assets is quite premature as there will be a lot of confusion due to the complexity of the nature of various crypto assets, Praveen Kumar, Founder and CEO of Belfrics Group, said.
“We are happy to note that the finance minister has announced crypto tax provisions in this budget, legitimising crypto transactions in some way. However, it is disappointing to see that the government has decided that the income from the transfer of digital assets will be taxed at 30% — which seems to be too high, given that the NFTs, cryptocurrencies and digital assets space is already booming and has immense potential for the economy in the near future. I am hopeful and certain that once the full potential of crypto is realised it will be lowered further,” says Om Malviya, President, Tezos India.