While presenting Budget 2022, Finance Minister Nirmala Sitharaman announced that “virtual digital assets” such as cryptocurrencies will be taxed. “I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent. No deduction in respect of any expenditure or allowance shall be allowed while computing such income, except cost of acquisition,” Sitharaman said.
Apart from this, there will be 1 per cent tax deducted at source (TDS) on any payment made in relation to transfer of virtual digital assets. It has also been proposed that gifting of virtual digital assets will be taxed in the hands of the recipients.
On these decisions, former finance secretary S.C. Garg commented: “No crypto Bill but taxation at 30 per cent of transfer gains. Additionally, 1 per cent tax collection at the time of transfer. Party seems to be over for crypto-assets and exchanges.”
During the post-Budget Press conference, the Finance Minister said the government does not want to wait for regulations to introduce taxation of cryptos. “We are not taxing currency which will be issued RBI (Reserve Bank of India). We will be taxing private transactions in the crypto world,” she said.
What Does this Taxation Mean?
Experts have mixed views on the taxation rules introduced for crypto assets, which includes cryptocurrencies as well as non-fungible tokens (NFTs).
While Sharat Chandra, vice-president, research and strategy, EarthID, a global decentralized self-sovereign identity management platform, says the tax measures are “progressive for the crypto ecosystem”, Tanvi Ratna, founder of Policy 4.0, says they do not imply legality. “Even illegal transactions are taxed in India because “transactions” under the Income Tax Act are not only legal transactions,” Ratna adds.
The move has brought clarity, say others. “Tax has always been applicable to gains on virtual digital currencies, but the ecosystem did not have clarity on it. The move to tax virtual digital assets gives the entire ecosystem, including investors and exchanges, transparency on the road ahead. A tax of 30 per cent on income from virtual digital assets, while high, is a positive step as it legitimizes crypto and hints at an optimistic sentiment towards further acceptance of crypto and NFTs across stakeholders in the country,” says Avinash Shekhar, CEO, ZebPay, a crypto exchange.
There are, however, others who disagree. Manish Kumar, co-founder of two blockchain-based financial market platforms GREX and RealX, says the taxes are high and a discouraging step. “Clearing the air on taxes means the income tax department does not pursue you with their versions of tax (regulations). Therefore, that means a big relief from such notices. However, what is not clear is whether other taxes such as stamp duty still have to be paid or not. It is also not clear if this is applicable for foreign investors too,” says Kumar.
It appears that the tax is irrespective of how much the crypto-based income is. “So, small investors and those who would ordinarily not need to pay tax, will now be required to pay 30 per cent. This will discourage them. At the same time, several other people who were holding back from investing owing to (lack of) regulatory clarity, might feel that they have a green signal. On the whole, I think this will lead to increased volumes,” says Ajeet Khurana, a crypto advisor and investor.
How Will The TDS Work?
Homi Mistry, Partner, Deloitte India said that 1 per cent TDS will have to be deducted by the payer of the consideration on transfer of such assets exceeding the specified thresholds. “In a case where the consideration is in kind, the payer is responsible to make sure that the TDS is duly deposited,” he said. The Finance Minister had mentioned in her speech that TDS of 1 per cent will apply on payment made regarding transfer of virtual digital asset “above a monetary threshold”. Clarity is awaited on what this threshold will be.
