The Government of India has long expressed its interest in regulating the scattered and unregulated crypto sector in India. Last year, a parliamentary panel of MPs met the representatives of crypto exchanges, Blockchain and Crypto Assets Council, industry experts, and other stakeholders to discuss the future of cryptocurrencies in India. There was a consensus at the meeting that crypto in India cannot be stopped but there should be a regulatory mechanism for this growing market. This meeting was days after PM Narendra Modi chaired a high-level meeting with officials from various ministries and the RBI on the future road map for cryptocurrencies in India. Fast forward to February 1, 2022, Finance Minister Nirmala Sitharaman introduced a new taxation regime on cryptocurrencies in Budget 2022 which could be seen as a new beginning for the crypto market in the country.
Indian Entrepreneur and Investor Sibi Paul has been reigning the industry with his efficient business consultancy and growth hacking strategies that alleviate businesses to implement a variety of research-backed and mindful opportunities inducing their growth. Sibi owing to his years of experience in the digital market begins to decrypt the future of cryptocurrencies posts the Union Budget for 2022-2023 has been presented.
- A New Tax Regime for Virtual Digital Assets
Nirmala Sitharaman announced that investors and traders will have to pay a 30% tax on income earned through crypto investments. In fact, any income from the transfer of any digital asset will be taxed at a rate of 30% while loss from crypto transfer cannot be set off against any other income. The 30% tax on digital assets is not dependent on the investment period. The taxation is the same for both short-term and long-term holdings unlike in the equity markets wherein taxation depends on the investment term. Additionally, the gift of the virtual digital assets will also be taxed in the hands of the recipient. Considering it all Sibi inherently believes that paying 30% tax is better than being banned.
- The Future Roadmap for Crypto in India
While the tax might look a bit on the higher side, industry players are considering the acknowledgement of cryptocurrencies in the Union Budget as a welcome development. Crypto stakeholders are expecting that this new cryptocurrency tax will clarify the future roadmap of crypto in the Indian market. On the other hand, the tax regime also places cryptocurrencies in the same category as lotteries which can be seen as short-sighted considering the innovation and disruptive technology associated with cryptocurrencies.
- No Deduction for Any Expenses Except the Cost of Acquisition
According to the new tax regime, the Government has notably brought in 30% tax but also made it clear that there will be no deduction for any expenses except the cost of acquisition. The market has been long speculating about a specific tax regime for digital assets and this development has cleared the clouds surrounding crypto regulations to a significant degree. However, the taxes on crypto assets need further clarification. As traders and investors can generate various types of incomes from cryptocurrencies, the market players are looking forward to furthering clarification on the taxation regime in the Budget documents.
- Tax Burden and TDS on Crypro Payment
Furthermore, the Government’s move of not allowing deduction in respect of any expenditure will leave an impact on the effective tax burden. At the same time, the proposal that any loss from digital asset transfer cannot be set off against any other income will, as a matter of fact, will differentiate crypto from other asset classes while increasing the effective tax burden simultaneously. The Finance minister has also proposed to provide for TDS on payment made in relation to crypto transfer at the rate of 1%. This provision of 1% TDS is on an expected line as it will help in tracking the transaction details for the improved revenue collection.
- The Central Bank Digital Currency (CBDC)
Budget 2022 has also paved the way for nations’ own blockchain-based digital currency, On February 5 2021, the RBI had instituted an internal panel to suggest a model for the official digital currency and the introduction of such a government-backed digital currency has now been confirmed. The Central Bank Digital Currency (CBDC) will bring the concepts of digital currencies and virtual assets closer to the Indian population. It will provide a legal tender status to the digital assets. Furthermore, individuals and businesses will gain the confidence of embracing digital coins as a credible investment vehicle and a viable mode of payment.
Sibi Paul has gained in-depth knowledge scouting the field of artificial intelligence and blockchain technologies. Assessing the budget with a lot of research he has come to the realization that all of these moves come ahead of the Government’s plans to introduce a new Cryptocurrency Bill to prohibit all private players in India. So, Budget 2022 is expected to open new doors of possibilities before the crypto market in the country.