Introducing a central bank digital currency (CBDC) is a strong move, and sends a clear message that India wants to be digital-first, efficiency-driven, and transparency-led.
The taxation of virtual digital assets – ie, crypto – is also a step in the right direction. It gives much-needed clarity and confidence to the industry. However, it is a case of two steps forward and one step back.
While taxation brings legitimacy to the industry, the high tax rate is discouraging. The finance minister said that income from crypto-related transactions will be taxed at 30%, on par with tax on gains from speculative activities such as lotteries, gambling and other gaming activities.
Crypto is an asset class and an investment product. Trading crypto requires specific skills and cannot be compared to gambling. The tax rate should have at least been the same as it is for other asset classes. The proposed 30% tax may hamper wider adoption.
Moreover, while profits from crypto trading will be taxed at 30%, losses cannot be set off against other losses or be carried forward. Like any business or asset, the crypto industry also experiences bull runs and bear markets. A trader might lose money in a bear market and hope to recover it during the bull run. Being able to carry forward losses would reduce the tax burden on investors. The government allows investors in shares to carry forward their losses and crypto trading should have been given the same treatment.
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As for making income tax return filing compulsory, if a person has any tax liability from crypto income, they will have to file a return even if their annual income is less than Rs 5 lakh. This will lead to unnecessary work for both assesses and the tax department.
Also, how TDS (tax deductible at source) will apply and be deducted in case of crypto-to-crypto trades is something that needs further clarity.
For the crypto industry the budget was largely positive, albeit slightly bittersweet. We must remember this is just the beginning of the larger process of mass adoption. Multiple discussions are needed to come up with better systems or processes. But we are very hopeful that the right actions will be taken to help India chart out a digital-led growth strategy to become a $5 trillion economy by 2025.
The author is cofounder and CEO of CoinDCX.
