Union Budget 2022 is underway with huge expectations being laden on the cryptocurrency scene in India. While tax experts and crypto enthusiasts along with the crypto industry are expecting new rules to be introduced for the taxation of income generated from cryptocurrency, they are not sure whether Finance Minister Nirmala Sitharaman will touch upon the issue in her Budget speech.
The past couple of years have been witnesses to a booming cryptocurrency industry in India in the form of crypto startups which have been beneficial not only for the country but for the world at large. As Nirmala Sitharaman addresses the country about the Budget for the year, here is where the status of cryptocurrency lies in India.
What Are The Changes?
The Finance Minister, Nirmala Sitharaman has announced that a new digital currency will be issued by the central bank. The currency is going to be a digital rupee using blockchain and other technologies and will be introduced by the Reserve Bank Of India in 2022-2023.
“This will give a big boost to the economy,” says the Finance Minister.
The currency will be using the same blockchain technology that Bitcoin and other popular cryptocurrencies use. Nirmala Sitharaman has not confirmed the future of Bitcoin and other cryptocurrency tokens in the country.
The Finance Minister says, “Digital currency will also lead to a more efficient and cheaper currency management system. It is therefore proposed to introduce a digital rupee using blockchain and other technologies, to be issued by the Reserve Bank of India, starting 2022-23.”
The Reserve Bank of India had already expressed a desire of introducing a digital token last year. However, the government was discussing the prospect of banning all cryptocurrencies in the country at the time.
Things were then stalled as a committee was formed to hold discussions with major stockholders and give various recommendations on the future of cryptocurrency in the country.
Read More: Fallouts Of Banning Cryptocurrency
The draft of the crypto bill suggests that the government may still ban all cryptocurrencies in the country in order to promote the digital currency from RBI.
“To create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 read.
The Lok Sabha missed out on the proposals suggesting a permanent ban on crypto activities in the country during the Union Budget Session 2022.
The crypto sector has shared its fair share of anticipation considering India’s rocky stance for the past couple years, during which millions of Indians entered the crypto market to experiment with this unregulated digital finance avenue.
On the other hand, Finance Minister Nirmala Sitharaman announced that a new crypto tax will be introduced in the country under which virtual digital assets will be taxed 30 percent. She further clarified that no set off will be allowed in the case of losses.
Also, gifts in the form of virtual digital assets will be taxed in the hands of the recipient. Along with this, no deduction except the cost of acquisition will be allowed. TDS (Tax Deducted at Source) will also be imposed on payments for the transfer of crypto assets at the rate of 1% for transactions over a particular medium.
The Head Of Banking, India, FIS, Harish Prasad said, “The Hon’ble. Finance Minister’s announcement on taxation related to Virtual Digital assets is a welcome move.”
What Are The Implications Of This Announcement?
Several governments around the world have been concerned about the crypto transactions being untraceable and availability for exploitation for illicit activities such as terror funding and money laundering. India has the highest number of crypto investors in the world according to reports.
This announcement has been a much awaited one in the context of growth and interest in investments in the form of digital assets. The uncertainty and concerns about the legal, taxation and regulatory status of cryptocurrencies have been addressed to a reasonable extent.
However, it is clear that the government is trying to minimize the lucrative view cryptocurrencies and digital assets possess. This is extremely evident from the heavy and highest tax slab of 30% applied on all gains and the lack of facilities to sell or transfer losses.
The application of 1% TDS to be applied on all transactions surrounding cryptocurrencies and digital assets in the digital marketplaces will provide a tracking mechanism for all transitions. However, enforcing this beyond Indian entities’ borders on impracticality.
What Does The Digital Market And People Have To Say?
It will come as no surprise that the moment the Finance Minister announced details about the future of cryptocurrency in the country, everyone who has investments in the digital market in the form of pre-existing cryptocurrencies such as Bitcoin and Ethereum went to check their prices.
There have definitely been some significant changes in the prices and furthermore, the valuation of some of these cryptocurrencies. Bitcoin, the most popular and well-known cryptocurrency in the world, has enjoyed a rise of +2.09% as Ethereum sees a whopping rise of +6.86%.
https://twitter.com/swatic12/status/1488449448481103874?s=20&t=sKv1QVPVw8Mnbo27GCRcLA
Binance Coin has risen by +1.86% while Solana sits at +15.98%. Dogecoin and Shiba Inu see a rise of +2.37% and +2.91% respectively. Unfortunately, Tether takes a hit of -0.68% as does USD Coin with a fall of -0.66%.
Nischal Shetty, the Founder and CEO of Indian cryptocurrency exchange, WazieX said, “the biggest development today was a clarity on crypto taxation. This will add the much needed recognition to the crypto ecosystem of India.
We also hope this development removes any ambiguity for banks, and they can provide financial services to the crypto industry. Overall, it’s good news for us, and we will need to go through the detailed version of the budget to understand the finer details.”
https://twitter.com/chaitanyaneeti/status/1488415803523629056?s=20&t=KqRQb8KYhEwZBFxATloqUg
Sumit Gupta, co-founder and CEO of CoinDCX, released a statement welcoming the taxation which said that this brings “much-needed confidence to the industry” further adding that “taxation of virtual digital assets or crypto is a step in the right direction.”
Melbin Thomas, the co-founder of Sahicoin noted in a released statement, “It is encouraging to see that the government has taken a positive step towards regulating digital assets. This will change a lot of misconceptions around crypto assets and pave the way forward to classifying them as a separate asset class.”
Crypto Investors watching Budget Speech pic.twitter.com/v0v3z7OSx2
— Joy (@Joydas) February 1, 2022
Anshul Dhir, the COO and co-founder of EasyFi network adds, “This is the first step towards legitimizing the digital asset market and allowing Indian talent to compete with global counterparts. Higher taxation can be counter productive in the long run but this is only a temporary measure to contain unorganized trade and transfer of cryptocurrency.”
However, most experts are convinced that the 30% tax slab is going to heavily increase the tax burden for crypto investors.
Sharat Chandra, a crypto evangelist says, “This move would force people to move to traditional modes of investment such as stock, mutual funds, because they are not subject to as high as 30 per cent tax.”
https://twitter.com/crush_nextdoor/status/1488456215340351490?s=20&t=KqRQb8KYhEwZBFxATloqUg
Sathvik Vishwanath, CEO of Unocoin cryptocurrency exchange says, “There are multiple things here. Income tax at 30 per cent is still acceptable but 1 percent TDS makes it tricky for intra -day traders in India.”
https://twitter.com/neerajarora91/status/1488456969744957440?s=20&t=KqRQb8KYhEwZBFxATloqUg
As NFTs will also be governed by this, Keyur Patel, co-founder and Chairman of GuardianLink and BeyondLife.Club which is an NFT platform has expressed disappointment saying, “It is an unhealthy framework, while we understand regulation to control other elements of crypto are required, but NFTs worldwide are still classified as non taxable assets, and it is imperative that the adjustment in understanding that crypto token is different than digital NFT is taken into consideration for future amendments which will enable industries like gaming, interactive immersive museums and other edutainment frameworks succeed without tax burden.”
My planes of Crypto and NFTs after 2022 Budget be like: pic.twitter.com/zoetjO76kT
— Harish Chavan (@addhyay_) February 2, 2022
As the RBI gears up for the adoption of CBDC, experts say that this move will ensure that institutional players will participate in the blockchain space as it will provide them with a tempting opportunity.
Piyush Gupta, the CEO of Polytrade on Central Bank Digital Currency (CBDC) said, “The adoption of CBDC will improve and make it easier for people to use Polytrade with the supporting infrastructure provided by the government.
The development will make digital currencies more accessible to the people just as UPI made digital cash easier to use. We expect that in the near future the government will continue to support and encourage digital currencies.”
After seeing budget, Crypto investor to Indian Govt.#cryptocurrency pic.twitter.com/Vo95p6XzBg
— Bihar_se_hai (@Bihar_se_hai) February 1, 2022
Piyush Gupta also emphasized that the introduction of CBDC is a “clear signal of India being a digital-first, efficiency-driven, and transparency-led system.” He further added, “CBDC will be the backbone of Blockchain and help India gain a powerful position in the global economy.”
Disclaimer: This article has been fact-checked!
Image Sources: Google Images
Sources: EconomicTimes, IndianExpress, IndiaToday, HindustanTimes +more
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