Many see government’s announcement as an acknowledgment of crypto industry as emerging asset class
After a long wait and mixed signals over the past two years, there has been some clarity on the taxation of income from cryptocurrency. Presenting the Union Budget on February 1, finance minister Nirmala Sitharaman announced that income from digital asset transfer will invite tax at the rate of 30 per cent. She made clear that no deductions or exemptions, except the cost of acquisition, will be allowed. She also said that crypto gifts will be taxed at the same rate on the side of the receiver. This brought a big clarity to those trading in the emerging industry. Hitherto, they are unsure how their income from crypto trading would be taxed.
What are digital assets?
While the government did not specifically refer to crypto coins, it has classified them and related sectors powered by blockchain technology – like NFTs – as digital assets. And hence this new taxation regime is being simply called the “crypto tax”.
What does this mean?
Many see the finance minister’s announcement as an acknowledgment of the crypto industry as an emerging asset class. The Reserve Bank of India (RBI) previously made clear its dislike of private virtual currencies such as Bitcoin, Ethereum, and others. It said it is working on its own central bank digital currency and will launch after due diligence. The finance minister in her Budget speech said the RBI digital currency would be launched this year. However, some appear worried about the steep rate of tax. They say this move is aimed at discouraging investors and reducing the appeal of cryptocurrencies.
How will the tax be calculated?
The new taxation regime will come into effect from April 1 after the passage of the union budget in Parliament. The finance minister said there will also be 1 per cent TDS on cryptocurrency transactions. Any loss incurred as a result of the transfer of virtual digital assets cannot be offset against other sources of income.
If you have invested Rs 1,000 in a cryptocurrency and then sold that coin for Rs 1,500, you don’t have to pay 30 per cent tax on the total amount. You will be required to pay tax on the profit or income – that is Rs 500.
However, this does not mean cryptocurrency has become a legal tender in India. It only means that the government recognises cryptocurrency as an asset class and will monitor crypto transactions from now on.