'Crypto will potentially be treated like stocks': Zerodha co-founder's take on Budget

Online broking firm Zerodha's co-founder Nithin Kamath seemed skeptical about crypto adoption in India after Finance Minister Nirmala Sitharaman's Budget speech earlier today clarified on taxation of cryptocurrencies and other virtual assets for the fincial year 2022-2023.

In a series of tweets, Kamath mentioned that post the Budget announcements, crypto, at best, will be treated as an asset and not a currency. "If it's not a currency, it loses its primary use case. Whenever the crypto bill comes through, my guess is that they will want to ring-fence Indian crypto to restrict capital flows outside India," the young billionaire pointed out in a series of tweets.

Explaining his reading of crypto after Budget 2022, he elaborated that crypto will potentially be treated like stocks. They will probably have to be held in some demat equivalent overseen by a regulated entity. If this happens, crypto will be centralized and lose its next big “advantage.”

He further added, "So yeah, if crypto prices don't keep going up like the last 2 years, I don't see how the current adoption rates will hold up, assuming that some of what I said comes to pass."

"The 30 per cent tax without the option to set-off of losses against other tokens or deductions can lead to a drop in turnover. Market markers & active traders are usually 80%+ of turnover in most trading businesses. If costs can't be shown as an expense, losses can compound quickly," he explained further.

ALSO READ: Budget 2022: Crypto tax signals acceptance of virtual assets, say exchanges

However, he also mentioned that the good news for crypto is that it was finally acknowledged in the Budget. That doesn't mean it's legal—it will only be after the crypto bill. Until then, regulated entities in India can't offer trading in crypto.
 
Having said that, the Zerodha co-founder also tweeted that his company will be ready to offer crypto "whenever SEBI gives its blessing."

Kamath's comments come after Sitharaman proposed a 30 per cent tax on income from transactions in such assets. Also, to bring such assets under the tax net, she proposed a 1 per cent TDS (tax deducted at source) on transactions in such asset classes above a certain threshold.

ALSO READ: Budget 2022 Live Updates: Govt to tax crypto 'assets', not 'currency' issued by RBI, says FM Sitharaman

Gifts in crypto and digital assets will also be taxed, she said.

The tax proposals will come into effect from April 1 after the passage of the Union Budget in Parliament.

Digital currency and assets like NFTs (non-fungible tokens) have gained traction globally over the last couple of years. Trading in these assets has increased manifold with cryptocurrency exchanges being launched. However, India did not have a clear policy on either regulating or taxing such asset classes.

NFTs are unique digital assets with verified ownership rights and the details are stored on a blockchain.

Further, meeting demands from large sections of industry, the FM said the RBI will launch a 'Digital Rupee' based on blockchain technology in 2022-23. The introduction of a central bank digital currency will give a big boost to the digital economy. Digital currency will also help in the currency management system, the minister said.