Crypto dealings a ‘grey area’ but not illegal, says Finance Secretary

A day after Finance Minister Nirmala Sitharaman announced a 30% tax on income from transfer of cryptocurrency, the government said it doesn’t treat dealing in crypto currency as illegal.

In her Budget speech, 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 virtual digital asset cannot be set off against any other income.

Finance Secretary T. V. Somanathan told a media house on Wednesday (February 2) that cryptos fall in “a grey area”. “It’s not illegal to buy and sell crypto,” he said.

The finance secretary said the government has brought in a taxation system that looks at crypto assets the way it looks at bets on horse races or any speculative transaction for that matter.

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 had said on Tuesday.

Also read: Centre puts 30% tax on cryptos, may treat it as ‘digital asset’

The Reserve Bank of India will 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.

Meanwhile, the crypto industry welcomed 30% tax on digital assets income. The prices of most crypto tokens including Bitcoin, ETH, WRX etc. remained unaffected on Indian exchanges on Wednesday.

Also read: Separate column in IT forms to disclose crypto income

“India is finally on the path to legitimising the crypto sector in India,” Nischal Shetty, founder and chief executive of crypto exchange WazirX, said. Rishad Manekia, founder and MD of Kairos Capital, said the taxation along with the introduction of an Indian CBDC in 2022 gives a much clearer idea about the way forward for the blockchain ecosystem in India and how the government is thinking about this space.

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On the anxiety in the crypto industry before the Budget, Principal Economic Adviser Sanjeev Sanyal said the Centre was likely to take a balanced view on cryptocurrencies. “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.

(With inputs from agencies)