India introduces ‘crypto tax’ of 30% on all digital assets
Finance minister in Union Budget also proposes 1% TDS on transactions of virtual assets; tax on gifts in crypto, digital assets
NEW DELHI: Gains from trading in cryptocurrencies and related assets like non-fungible tokens (NFTs) will be taxed at a flat 30% and 1% of tax will be deducted at source (TDS) when any such transactions take place, Union finance minister Nirmala Sitharaman said during her Budget speech on Tuesday.
The announcement marks a decisive direction on such trades after years when buying or selling cryptocurrencies like Bitcoin or Ether were entirely unregulated, with even a definition for how the government saw them lacking.
The new proposals, Sitharaman said, are an initial step on taxing their continuing trade and a more detailed framework could be developed. “Consultation process is on. After that we get back on regulatory framework of some kind... Profit-making, transaction is happening, so I’m taxing,” she said, while speaking to the media after her speech in parliament.
Technically, the government will now consider these “virtual digital assets”. In the speech, she said: “There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime”.
At the briefing, the finance minister made it clear that these assets cannot function as currencies. “Every individual cannot be minting currency. Is it not illicit? When illicit currency is coming in this country don’t we catch then? So currency cannot be issued by everybody… It has to be driven by the central bank of the country. And what we announced today is, the Reserve Bank of India [RBI] will come up with the digital currency. That’s one thing. Now, outside of which [digital] assets are sold, value is created, nothing stops me from taxing them,” she said.
In the memorandum to the Finance Bill, 2022, the government proposed a definition for virtual digital assets “proposed to mean any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise… providing a digital representation of value…”
In other words, the definition covers all cryptocurrencies, whether they are mainstream ones like Bitcoin, so-called altcoins like Dogecoin and private cryptocurrencies in which transactions are concealed.
“Non-fungible token and; any other token of similar nature are included in the definition,” the memorandum document added.
The 1% TDS rule will help the government track each crypto transaction.
A limit of ₹50,000 will be applied if the person paying consideration is an individual or Hindu Undivided Family (HUF) HUF and he or she is either not engaged in any business or profession or if engaged, the annual turnover or gross receipt does not exceed ₹1 crore in case of business or ₹50 lakh in case of the profession.
Further, on short-term capital gains or business income from the transfer of cryptocurrencies, applicable surcharges rates or 10-37% will apply. On long-term capital gains from the transfer of cryptocurrencies, the surcharges rates will not exceed 15%.
Further, in her budget speech, the finance minister proposed that gifting of virtual digital assets would be taxed in the hands of the recipient.
Crypto traders appeared to be divided on the step, though most welcomed it for offering the first clarity.
“India is finally on the path to legitimising the crypto sector in India,” Nischal Shetty, founder and chief executive of crypto exchange WazirX, said, according to news agency PTI.
Rishad Manekia, founder and MD of Kairos Capital, said the taxation along with the introduction of an Indian CBDC (central bank digital currency) 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.
CBDC refers to the digital rupee that the Union government allowed setting up. This, unlike cryptocurrencies that are decentralised, will be regulated by the Reserve Bank of India.
According to PTI estimates, crypto exchanges raised over $638 million last year from venture capital investors as investors made a beeline, despite the lack of regulatory clarity on the matter. “The introduction of TDS (tax deducted at source) on cryptotransfers will enable the government to better monitor crypto transactions,” Amit Singhania, partner at Shardul Amarchand Mangaldas & Co, said in a statement.
Pranay Bhatia, partner and leader for tax and regulatory services at the consultancy firm BDO India, said tracking such transactions in the absence of a central regulator might be challenging, PTI reported.
Bitcoin rewards app Gosats co-founder and chief executive Roshan Aslam said: “While we eagerly wait for the crypto Bill, we expect positive and wellthought regulations going ahead, which are strongly needed for consumer protection.” Accounting and tax-focused firm NA Shah Associates’ founding partner Ashok Shah called the move a “deadly blow” to the virtual digital ecosystem. “Proposed measure is a stiff provision and will adversely impact investment and dealing in digital assets.”