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 per cent tax levied on income arising from the sale of cryptocurrency is similar to the tax rate on winnings from lottery, game shows, puzzles etc
New Delhi:
Giving clarity on taxation of cryptocurrencies and other virtual assets, Finance Minister Nirmala Sitharaman on Tuesday proposed a 30 per cent tax on income from transactions in such assets.
Also, to bring such assets under the tax net, she proposed a 1 per cent 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, she said.
The tax proposals will come into effect from April 1 after the passage of the Union Budget in Parliament.
Experts said the 30 per cent 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 Sitharaman’s proposal for a 30 per cent 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.
In her Budget Speech, Sitharaman has proposed the tax on income generated at the sale of any digital asset without any deductions, amid a growing proliferation of assets like Bitcoin even as the regulatory structure on them remains unclear.
”India is finally on the path to legitimising the crypto sector in India,” Nischal Shetty, founder and chief executive of crypto exchange WazirX, said.
With a majority of banks refusing to provide any financial services to crypto investing after the RBI’s repeated pleas of concern to the government, Shetty hoped that the clarity offered by the government will remove ambiguity for banks and make them provide financial services to the crypto industry.
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 exact amount of crypto investments by Indians is unclear as there is no way to gauge those.
”Prima facie, it seems digital currencies will be taxed akin to speculative income at 30 per cent flat on a gross basis.
”Further, 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.
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 well-thought 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 much-needed 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 tax-focused firm N A 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. It also needs to be seen whether non-fungible tokens shall be included in its definition.
”Provisions related to TDS will lead to unintended complications. The identity of the payee is difficult in the digital assets trade. If the PAN of the payee is not available, there could be a TDS (tax deducted at source) of 20 per cent. Tax on the gifting of the virtual digital asset will act as a dampener,” he said.
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.