Union Finance Minister Nirmala Sitharaman’s Union Budget 2022 announced that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent.
The FM said the scheme would not allow any deduction in respect of any expenditure or allowance while computing such income except cost of acquisition. Further she said, loss from transfer of virtua l digital asset cannot be set off against any other income.
The minister further said that in order to capture the transaction details, the government would also make a provision to provide for tax deduction at source (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 is also proposed to be taxed in the hands of the recipient, Sitharaman said.
Amit Singhania of Shardul Amarchand Mangaldas & Co said a tax on cryptocurrency was expected this time. He, however, pointed out that the proposed tax appears to be stringent.
The finance minister also announced the Reserve Bank of India’s intent to introduce a digital currency in the next financial year using blockchain and other supporting technology. “Introduction of a central bank digital currency will give a big boost to digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,” the minister said.
WazirX CEO Nischal Shetty said a tax on crypto is an indication that the government believes that digital currency is an emerging asset class. A tax on crypto currency gives, in a way, recognition to the crypto ecosystem of India, Shetty said, adding that banks can now think of financing the crypto industry.
For all these days there were reports suggesting the Modi government plans to ban cryptocurrencies. However, the FM on Tuesday made it amply clear that it just wants to regulate the crypto market. At a press conference after the Budget, Sitharaman gave ample hints to suggest that cryptocurrencies will be treated as digital assets. “Currency rests only with the RBI, everything else is crypto assets and will see 30% tax,” the FM said.
While a 30% tax on cryptocurrency may have disappointed a section of investors, a majority of them are rejoicing after living in fear for quite some time about the government’s intention to ban it altogether.
The Finance Minister had two clear choices: Ban crypto or tax the income earned by investors. The government found it prudent to opt for the second option.
Gaurav Mehta of Catax called it a “progressive move” that proves the government’s intent to monitor, validate and regulate the crypto economy.
On a question how crypto coins can be taxed when there is no set of rules to regulate the currency, Sitharaman said, “We are collecting inputs on regulation for crypto assets… I don’t wait till regulation comes in for taxing people who are making profits.”
Earlier, the Reserve Bank of India had expressed concerns about the wide circulation and growing popularity of private cryptocurrencies. The FM’s decision to introduce a digital rupee is aimed at giving “a big boost to the digital economy”. Sitharaman said that digital currency will lead to a more efficient and cheaper currency management system.
In 2021, more than 20 million people in India latched up to crypto currency. At present, Indians hold crypto assets worth $5.3 billion.