The 1st of February is not a regular day in the lives of many in the Indian household. It is the day when India’s Finance Minister, Nirmala Sitharaman announces the budget for the year. The union budget and its constituents affect varied sectors differently. Some sectors end up being in a better position and are satisfied but the same is not true for all. The Union Budget 2022-23 was a bit different and more significant. Growth-oriented and development-driven, the budget seeks to lay down the blueprint of the economy.
This blueprint, termed as ‘Amrit Kaal’, is about India’s course for the next 25 years – from India at 75 to India at 100. The term ‘Amrit Kaal’ comes from Vedic astrology, which is a critical time slot and is considered to be the best and most auspicious time to start any new task. This time, the budget gained the spotlight due to many new notions. For instance, India’s economic growth is estimated at 9.2%, the highest among all large economies. Apart from it, the IPO of LIC (Life Insurance Corporation of India) and a promise of 60 lakh new jobs to fill the void of unemployment created by COVID-19 were some topics to name a few. Furthermore, India is expected to launch sovereign green bonds as a part of the government’s borrowing programme, E-passports with embedded chips are to be released and one major announcement was pertaining to cryptocurrency.
Cryptocurrency or crypto is a digital currency or digital asset that works as a medium of exchange through a computer network. It is an encrypted data string that is monitored and organized by a network called a blockchain. It works on a decentralized model, which means, it is not issued by any government or financial institution. Some of the famous cryptocurrencies are Bitcoin, Ether, Litecoin and many more. Recently, crypto has been gaining attention worldwide and its usage has increased multifold. The union budget brought an income tax rule for cryptocurrency which was surprising for many. According to the rule, income from the transfer of virtual digital assets or cryptocurrencies is taxable at 30% from 1st April 2022. With this, India has become one of the few countries in the world to impose a crypto tax.
Cryptocurrencies have now become taxable even if the taxpayer’s total income is below the threshold limit of the income tax slab, that is, Rs. 2.50 lakh. However, it is important to understand that the tax is to be paid only on income or profit. For example, if an individual purchased crypto for Rs.10,00,000 and sold it for Rs.15,00,000, then the profit from the sale will be Rs.5,00,000. Hence, the tax to be paid will be 30% of 5,00,000, which is, Rs. 1,50,000. Furthermore, it has been cleared out that loss from the transfer of virtual assets can not be set off against any other income and carried forward as well. Even crypto received as a gift is also taxable. The story doesn’t end here. There is more to it to discourage the investor. The government is all set to apply 1% TDS (Tax Deducted at Source) on the crypto from 1st July 2022. This will be deducted from the whole transaction value regardless of whether the person makes a profit or incurs a loss.
The stance of the government on taxing proves to be ambiguous as the Finance Ministry is yet to provide a regular framework for the operation. Even till now, the Indian government has not passed any bill regarding the regulations or ban on the usage. In a recent interaction at Stanford University, Finance Minister Nirmala Sitharaman explained that the decision on regulation around the virtual currency will still take time as it is an important decision and can not be rushed. Despite not being formally recognised, taxing cryptocurrency seems obscure.
The government claims that the TDS will help track the movement of funds. In contrast, the exchange operators believe that this will dry up the liquidity. The decision has been condemned by many investors and stakeholders. They believe that taxing the crypto will discourage investors as they won’t be able to make quick money. A large part of their profits will go down in paying the taxes. Further, this will negatively impact the crypto retailers. The crypto market works with high-frequency traders who survive with extremely thin margins. TDS along with tax will block these meagre incomes and restrict their operation. To add on, India’s own digital currency is expected to debut in early 2023. This digital rupee blockchain is being developed by the Reserve Bank of India. With this, it would be able to trace all the transactions, unlike the mobile wallet of private companies. This digital currency launch appears to be a regulated, legitimate replacement of private mobile wallet companies and cryptocurrency.
To conclude, the tax on cryptocurrency holds different meanings for different sectors. For the government, it might be a source of income. Further, the government claims that they need to thoroughly analyse before regulating crypto as it can also be manipulated for money laundering and terror financing. On the contrary, the brokers and individuals trading in cryptocurrency are not at all satisfied. No inputs were taken from the stakeholders of the cryptocurrency. The launching of digital currency also seems to be a legal alternative to crypto. However, there are still many things unclear. It appears there is a long way before the virtual currency gains acceptance in India.
CITATIONS:
- Indian Union Budget 2022-23. (2022). [Ebook] (p. 22). Retrieved from https://assets.kpmg/content/dam/kpmg/in/pdf/2022/02/India-union-budget-2022-23.pdf
- HIGHLIGHTS OF THE UNION BUDGET 2022-23. (2022). Retrieved 26 April 2022, from https://www.pib.gov.in/PressReleasePage.aspx?PRID=1794165
- Cryptocurrency to be taxed at 30 per cent from today, here is how it will impact investors. (2022). Retrieved 1 May 2022, from https://www.indiatoday.in/technology/features/story/cryptocurrency-to-be-taxed-at-30-per-cent-from-today-here-is-how-it-will-impact-investors-1932159-2022-04-01
- 30% crypto tax becomes law in India following Finance Bill approval. (2022). Retrieved 26 April 2022, from https://cointelegraph.com/news/30-crypto-tax-becomes-law-in-india-following-finance-bill-approval
- 30% Tax on Crypto Income: Should small investors move their money to mutual funds and stocks? Experts speak | The Financial Express. (2022). Retrieved 26 April 2022, from https://www.financialexpress.com/money/income-tax/30-percent-cryptocurrency-income-tax-should-small-investors-move-to-mutual-funds-and-stocks/2441057/
- India’s digital currency to debut by early 2023. (2022). Retrieved 2 May 2022, from https://economictimes.indiatimes.com/news/economy/policy/indias-digital-currency-to-debut-by-early-2023/articleshow/89379626.cms?from=mdr