So, are cryptocurrencies taxed?

By Sujit Bhar

No bill related to cryptocurrency credibility – the Cryptocurrency Regulation Bill – has yet been tabled in Parliament, or even fully formatted. The general idea circulating is that the government does not want to pass up this source of revenue without having exploited it, and perhaps they would treat it as an asset.

How this will be done will be clear when the Cryptocurrency Bill is unveiled, but in the meantime, Finance Minister Nirmala Sitharama, in her Union Budgeted proposals to Parliament today, announced a hefty tax 30% for all “virtual digital assets”.

Two things happened afterwards. First, theories have sprung up as to whether this was done to capture the crypto bandwagon – Indians have invested well over $6 billion in the various cryptocurrencies, according to the latest estimate – because that the idea was to treat it as an asset class anyway. The final bill will likely come after the Feb. 10-March 10 election.

Second, following a sudden depression in cryptocurrency sales, they have all returned to the green zones (at the time of writing). What traders have in mind is anyone’s guess.

The other declaration of the digital rupee will not fall into this category and will simply be another method to avoid banking bottlenecks and to derive transaction footprints at all possible levels. The end goal would be to minimize the use of physical banks. And, anyway, Indians have gotten used to UPI payments, and it will be a natural transition. The only relation to cryptocurrencies would be that this digital rupee will also use the Blockchain certification method which has been the foundation of all cryptocurrencies.

Crypto income, however, will be a different ball game. Not just revenue from virtual digital assets – she used that term, not mentioning crypto, but the general belief is that she avoided the use of the specific term in the absence of a bill or a crypto law – would be taxed, there is also a provision for TDS on payment made in connection with the transfer of a virtual digital asset at the rate of 1% of that consideration above a monetary threshold. This will be due by the recipient.

The minister said: “Accordingly, for the taxation of virtual digital assets, I propose to provide that any income derived from the transfer of any virtual digital asset will be taxed at the rate of 30%. How will this income be calculated? He will, as might be expected, benefit from a deduction of the cost of acquisition, but no deduction in respect of an expense or indemnity will be authorized. This leaves very little space for crypto gambling, so far a free enterprise, of sorts.

The Indian government has so far refused even to recognize cryptocurrencies, despite demands to do so from all quarters. There was once a rumor that crypto would be banned, but when investments in this “sector” reached billions of dollars, the government started to rethink. As the belief grew that the government was no longer in the mood to ban crypto mining, trading, or hoarding, transactions exploded into huge proportions. Even college students used their pocket money to invest. There is no definitive log of all cryptocurrencies in various exchanges, but the growth stories have been extraordinary: in 2021, there were over 6,000 currencies in the world. Today, there could be around 8,000. Almost all accept Indian rupees.

The large amount of money circulating must be taxed. This seems to have been the fundamental objective of the cash-strapped government. Based on the continued positive sentiment in crypto trading – including Bitcoin, Ethereum, Doge, 1inch, Atom USDT, Ripple, etc. – the government struck hard at the right time.

There is another school of thought that might scare off investors today. A financial adviser said the announcement of the 30% tax on digital assets, along with the announcement of the digital rupee, could mean that the government may want to keep crypto out of reach of retail investors and move it to high net worth individuals. . This could indicate a desire by the government to ban crypto trading in its natural form. Yet all of this is still in the realm of conjecture. There is no clarity on this so far.

The lack of clarity is disturbing. Even the 2022 Economic Survey tabled in Parliament on January 31 did not mention cryptocurrency. The proposed cryptocurrency regulation bill may not see the light of day until after the election. We will have to wait.

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