India introduces a ‘crypto tax’ of 30% on 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: Giving clarity on taxation of cryptocurrencies and other virtual assets, Finance Minister Nirmala Sitharaman on Tuesday proposed a 30% tax on income from transactions in such assets.
Also, to bring such assets under the tax net, she proposed a 1% TDS (tax deducted at source) on transactions in such asset classes above a certain threshold. Gifts in crypto and digital assets will also be taxed, the Union minister said.
The tax proposals will come into effect from April 1 after the passage of the Union Budget in Parliament. Meeting demands from large sections of industry, she said the RBI will launch a ‘Digital Rupee’ based on blockchain technology in 2022-23.
Experts said the 30% tax levied on income arising from the sale of cryptocurrency is similar to the tax rate on winnings from lottery, game shows, puzzles etc.
Digital currency and assets like NFTs (non-fungible tokens) have gained traction globally over the last couple of years. Trading in these assets has increased manifold with cryptocurrency exchanges being launched. However, India did not have a clear policy on either regulating or taxing such asset classes.
NFTs are unique digital assets with verified ownership rights and the details are stored on a blockchain.
Nangia Andersen India Chairman Rakesh Nangia said the government has walked the talk on a stable and predictable tax regime and transfer of virtual digital assets have been brought under the taxation ambit.
Meanwhile, the crypto ecosystem has welcomed the proposal for a 30% tax on digital assets for legitimising bets on the assets considered as very risky by the RBI, even as a law on regulating such activity is awaited.
“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.
BankBazaar.com CEO Adhil Shetty said India will now join a handful of nations to launch its own blockchain currency.
Polytrade CEO Piyush Gupta expects that in the near future, the government will continue to support and encourage digital currencies that will propel the gross domestic product (GDP) to $5 trillion as envisaged by the government.
Crypto exchanges raised over USD 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.
However, Pranay Bhatia, partner and leader for tax and regulatory services at the consultancy firm BDO India, seemed to have differing views, saying tracking such transactions in the absence of a central regulator might be challenging.
In the absence of a law on cryptos, which was scheduled to be tabled in the winter session of Parliament itself, the regulatory aspects on crypto investments are as yet unclear.
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.”
Sumit Gupta, co-founder and chief executive of crypto exchange CoinDCX, termed the Budget as “forward-looking and inspirational”.
“Taxation of virtual digital assets or crypto is a step in the right direction. It gives muchneeded clarity and confidence to the industry. India’s focus on digital innovation and the promotion of blockchain technology is welcome,” he added.
However, accounting and taxfocused 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.”
Meanwhile, industry players also welcomed the announcement to introduce central bank digital currency in FY23, which the RBI was intending to launch by the end of 2021.
Kashyap Mahavadi, founder and chief executive of fintech Dinero, said that with the introduction of the central bank digital currency (CBDC) and legitimising cryptos, India is now bringing out a revolution in financial systems.
Sumit Ghosh, co-founder and CEO of Chingari App (whose $GARI Social Tokens are listed on 19 global crypto exchanges), said information and awareness about crypto/ digital currency is currently limited in India, which is also a major challenge that needs to be resolved.
Ashish Singhal, co-chair of the Blockchain and Crypto Assets Council (BACC) and founder & CEO of CoinSwitch, said the regulatory guidance on tax from the government furthers the mainstreaming excitement of this emerging asset class with over USD 6 billion worth of investments in India.