Union Budget 2022 has brought along key developments that could shape up the future of the crypto sector in India. Along with announcing plans of bringing in an RBI-regulated digital Rupee, Finance Minister Nirmala Sitharaman levied a 30 percent tax on income generated from the transfer of virtual digital assets. She highlighted that this tax comes with no deductions or exemptions. The turn of events have left industry insiders relieved after a streak of anxious months clouded by speculations of a crypto ban in India.
The government’s decision on including virtual assets (like cryptocurrency) as taxable is being seen as a subtle and indirect way of giving the crypto sector a legible position in the market, industry insiders feel.
“The budget shows the government’s intent to take a business-friendly approach towards the crypto sector while protecting the interest of consumers and the exchequer. We hope to work with the government to help bring crypto-asset taxation at par with other asset classes,” Ashish Singhal, Founder and CEO of crypto exchange CoinSwitch Kuber told Gadgets 360.
During her speech covering over 150 points, Sitharaman acknowledged the “phenomenal” increase in the transactions in virtual digital assets in recent times.
“The magnitude and frequency of these transactions has made it imperative to provide for a specified tax regime accordingly. For the taxation of virtual digital assets, I propose that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 percent,” Sitharaman said, while presenting the Union Budget 2022-23 on Tuesday, February 1.
Gifts in the form of digital assets are also under the tax scanner in India now, Sitharaman announced in the Parliament.
On payments made for the transfer of digital assets, India will now be collecting an additional 1 percent tax on the hands of the recipient.
Welcoming the decision, industry experts noted that this tax regime would make the otherwise decentralised crypto-based income slightly trackable.
“Taxing crypto transfers will enable the government to better monitor crypto transactions. Rationalisation of surcharge rate on long term capital gains by limiting it to 15 percent, will encourage investments in capital assets,” said Amit Singhania, Partner at Indian law firm Shardul Amarchand Mangaldas & Co. commenting on the development.
While industry experts have majorly appreciated the “regulate over restrict” approach of the Indian government towards the crypto sector, some concerns seem to have emerged due to the lack of details.
For now, the finance minister did not provide further clarification on what this means for crypto exchanges including GST implications.
Speaking to Gadgets 360, Sathvik Vishwanath, CEO of crypto exchange Unocoin said the government may have gone with imposing a lower tax percent.
“While the proposed standard tax is quite high, this clarity was the need of the hour and now the traders can plan their trades accordingly. The proposed TDS will make sure the trades are accounted on monthly basis, but this hampers the intra-day traders to some extent,” Vishwanath noted.
Sitharaman in her speech, skipped defining what classifies as “virtual digital assets”, leading to some confusion among industry members. Though she mentioned in her post-Budget press conference later that cryptocurrencies fall under the digital asset class that will be taxed.
“Currency is currency only if it’s issued by the central bank, even if it’s crypto. By anything that is outside of that — loosely all of us refer to them as cryptocurrencies — they are not currencies. We are not taxing currency that is yet to be issued and that provision is now made in the name of digital Rupee, the exact name you’ll get later,” Sitharaman said.
“What the Reserve Bank issues will be digital currency, everything that prevails outside in the name of digital whatever are assets being created by individuals and in transacting that asset if there are profits being made, we are taxing that profit.”
For now, it remains unclear if non-fungible tokens (NFTs) count as “virtual digital assets” in India or not. NFTs are digital collectibles with their ownership stored on the blockchain network. The sales of NFTs reached some $25 billion (roughly Rs. 1,84,690 crore) in 2021 as per DappRadar data.
This lack of clarity has drawn some criticism from NFT players.
“Virtual assets are lumped into one by the government implying cryptocurrencies and NFTs are all in the same bucket. While we understand the need for regulations to control other elements of crypto, NFTs are nascent in its class. Worldwide, NFTs are still classified as non-taxable assets,” said Keyur Patel, Co-Founder and Chairman of NFT platform BeyondLife.Club.
Patel said that in the future amendments of this first version of crypto framework, NFTs must be given a chance to perform without a tax burden hovering over investors and companies.
“This implies huge friction initially until the user base understands that all asset classes must be taxed for the holistic economic growth. Initially, this 1 percent TDS will create a major roadblock for the investor community,” he added.
Meanwhile, the topic of banning the crypto sector in any way did not make it to the annual Budget hearing.
Sitharaman also announce that India will get its “Central Bank Digital Currency (CBDC)” in the form of digital Rupee this year, which will be regulated by the Reserve Bank of India (RBI).
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