India moves towards regulating cryptocurrency in the country with announcement of flat 30% tax on income. In her Budget Speech 2022, Finance Minister Nirmala Sitharaman said that 30% tax would be charged on income from transfer of virtual digital assets. She further said no set off will be allowed in case of losses. Also, gifts in virtual digital assets would be taxed in the hands of the recipient.
It took almost one year for the government to officially announce the legality of cryptocurrency in India. In March 2021, Nirmala Sitharaman clarified that the government will not completely ban cryptocurrencies or at least the technology part of it. But, that was not an official announcement and a lot of unconfirmed news related to crypto ban kept on making rounds throughout the year.
India Introduces New Tax Structure For Cryptocurrency
India introduces a separate tax structure for cryptocurrency. The finance minister mentioned that the magnitude and frequency of crypto transactions have 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 per cent,” the Finance Minister said. Sitharaman further said that no deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. The loss from transfer of virtual digital asset cannot be set off against any other income.
The Indian Finance Minister also proposed to provide for TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold. Gift of virtual digital asset has also been proposed to be taxed in the hands of the recipient.
India is also planning to launch a Central Bank Digital Currency (CBDC) by 2023, the Finance Minister confirmed.
Commenting on the news, Praveen Kumar, Founder and CEO of Belfrics Group, said:
“The taxation on profit generation from crypto investments is a welcome move as it legitimises the assets and its operations. We should be expecting a followup 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 lot of confusion due to the complexity of the nature of various crypto assets.”
Government Wanted A Balanced Approach
Cryptocurrency professionals and investors were anticipating clarity on taxation of gains from crypto assets in Budget 2022. Some market experts believed that in her Budget Speech 2022, Finance Minister Nirmala Sitharaman would avoid directly addressing the cryptocurrency issue. But, it was expected that the Finance Minister would make announcements related to crypto tax.
According to Principal Economic Adviser Sanjeev Sanyal, the Government was expected to take a balanced view on cryptocurrencies. Meanwhile, the Economic Survey 2022 tabled in the Parliament on Monday (January 31, 2021) did not talk about cryptocurrency or Blockchain. It is also highly unlikely that Cryptocurrency Regulation Bill will be introduced in the Parliament in the ongoing 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 was quoted as saying by PTI.
Crypto Price Trend
This marks a historic day for Indian crypto market, which was earlier considering a ban on crypto assets. Crypto industry and experts welcomed the move towards legalization. The demand for exchange related token jumped on the news. For example, WazirX token WRX jumped over 25% on the news.
Although, the announcement is the first step towards giving green signal to crypto startups, but a flat tax of 30% coupled with no set off for losses is an indication that government intends to discourage small investors and would intend that only the HNIs make crypto investments.