The Union government today proposed a new framework for cryptocurrencies in the annual Budget, levying a flat tax of 30 percent, in an apparent attempt to legitimise their trading in cryptocurrencies, NFTs, and other digital assets.
The government, in line with its plan to have a fiat digital currency, also proposed to issue a digital rupee or Central Bank Digital Currency (CBDC) in fiscal 2022-23.
Even as the Reserve Bank has time and again cautioned investors and traders regarding “potential economic, financial, operational, legal, customer protection and security-related risks” associated with trading and investing in cryptocurrencies, Union Finance minister Nirmala Sitharaman, instead of banning them, instead opted to levy taxes, thereby legitimizing virtual currencies in the country.
Digital assets are a realty
Ravi S. Raghavan. Partner - Tax and Private Client Group. Majmudar & Partners says digital assets are today's reality, keeping that in mind the government has taken some prudent decisions and that along with the volume in transactions, a market exists where payment for transfers of a virtual digital asset can be made through another such asset. Tax clarity was much-needed.
“The RBI has repeatedly reiterated its strong views against cryptocurrencies, saying they pose serious threats to the macroeconomic and financial stability and also doubted the number of investors trading them and their claimed market value. So, I think the government just stopped short of calling it a speculative transaction taxing it at 30 percent, and did not allow for any set-off or losses. This is the first step towards regularizing digital assets and a welcome one,” he said.
30% tax may not deter the risk takers
A 30 percent tax on crypto may push some investors towards traditional assets but it won’t deter those who like the thrill of high-risk, high reward investments. According to experts, a 30 percent tax on digital assets would certainly disincentivize crypto investors to some extent and an exodus towards traditional financial assets(stocks, bonds, ETFs) cannot be ruled out. However, those who relish the thrill of high risk -high reward investing wouldn’t be deterred by high taxes.
Another expert opined that 2022 is a year of global regulations for cryptocurrencies and their “spectacular” adoption policies. Across the world, countries are positive about its adoption and regulation in their national interest, while the other side of the crypto-pessimists are not able to gain popularity among lawmakers.
Welcome move to regulate cryptocurrencies
Dileep Seinberg, Founder and CEO, Thinkchain, Crypto, NFT & Blockchain Consulting company said not to ban cryptocurrencies and regulate them instead is a welcome move, however, the government could have considered the percentage of tax that was being levied by the government.
“I am glad this will silence those who are anti-cryptos while encouraging those who look at the potential of this technology to bring about a positive change globally,” he said.
He added that digital Rupee is definitely a move “Crypto-preneurs” were waiting for and that it will build a great economic value in decades to come.
Leverages job opportunities in IT, blockchain industry
It’s a big bang to a revolutionary journey in India. People seem to welcome this devastating move, said Vipin Kumar, CEO Technoloader Pvt. Ltd. "It gives a legitimacy boom in bigger crypto sphere. Our Government is lightening up the path to a progressive stance. It leads to leverage job opportunity in IT and Blockchain industry. Such glance of government will take India to a top notch position in blockchain industry.”
Confusion in tax now over
The move to tax digital assets is a welcome one, since it removes the potential confusion in tax filing by crypto-investors, said Swapnil Pawar, Founder, ASQI. "Taxing of gifts and TDS are also useful to reduce abuse of anonymity in the crypto domain. We believe that the future of crypto innovation is in KYC-compliant transactions in legally recognized tokens. Rupee in CBDC form, if not constrained by only existing banks being allowed to participate, can be a game-changer for payments, credit and capital markets. It can significantly improve financial inclusion in India - by enabling faster innovation not constrained by legacy systems."
Retail investors need not worrry about investing in crypto
The introduction of India's own digital currency ensures the cryptocurrency industry's future success, said Bibin Babu, Co-founder, MetaSpace. "The tax provision of 30 percent was announced in the Union budget 2022 for digital assets. No expenditure deduction except the cost of acquisition. It's a win-win situation! Now, retail investors should no longer worry about whether they can invest in cryptos.”
Boom expected in crypto space post-Budget
Union Budget 2022 confirms more crypto adoption on the way, said Mo Akram, Ideator, Metaspace. "There will be a sensational boom for cryptocurrency as more emerging investor classes begin to recognize the potential of it, leading to more blockchain innovations. "
Crypto tax authenticates ecosystem
Cryptocurrency seems to have caught the government’s attention after FM recognised the currency as virtual digital assets. "However, the biggest eye-catching part is the government’s decision on crypto taxation. It is noteworthy to consider this move as a progressive step towards monitoring, authenticating and regulating the crypto ecosystem in the country and bringing possible transformations," said Abhay Aggarwal, Founder & CEO, Colexion.
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