Budget 2022: 30% tax on digital assets is the first step towards regularisation

The Union Finance Minister Nirmala Sitharaman announced during her Budget speech for 2022-2023 that all cryptocurrencies will fall under a tax bracket going forward and 30 per cent tax will be levied on any income from the transfer of these visual assets. Understandably, NFTs (non-fungible tokens) are also included in this tax bracket. Sitharaman added that no deductions and exemptions are going to be allowed on this.

The Finance Minister pointed out during the speech that gifts in the form of virtual assets will also be taxed on the recipients’ end and there is also going to be an additional 1 per cent tax deducted at source (TDS) on the payments made for the transfer of digital assets.

"There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions are made it imperative to provide for a specified tax regime accordingly, for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent," Sitharaman said, adding that “no deduction in respect of any expenditure or elements shall be allowed while computing such income except the cost of acquisition for loss from the transfer of virtual digital assets cannot be set off against any other income”.

Sitharaman, however, did not speak about what this new taxation would mean for crypto exchanges or the GST implications on them.

While for those who have already invested in crypto and NFTs, the 30 per cent tax is not great news, industry players are seeing this as a positive step forward. For starters, it does mean that cryptocurrencies are not going to be banned in India.

Speaking about the new tax, Keyur Patel, Co-Founder and Chairman of GuardianLink and BeyondLife.Club, said it is going to be seen as a problem initially till the user base understands that all asset classes need to be taxed for holistic economic growth.

“Initially in the space, it will create a major roadblock for the investor community but like all ecosystems, this too shall evolve,” Patel said. He pointed out that for future amendments it must be taken into account that crypto tokens differ from NFT tokens and thus the latter should be allowed to succeed without the tax burden.

“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. Government-mandated 1% TDS for every trade will enable it to track crypto transactions and provide much-needed visibility on the holders and users of crypto assets,” said Melbin Thomas, Co-founder, Sahicoin.

“The tax clarity is a welcome move. Overall, it’s a huge relief to see that our government is adopting the progressive stance of going ahead in the direction of innovation. By bringing in taxation, the government legitimises the industry to a large extent. The majority of people, especially corporates, who have been sitting on the sidelines because of uncertainties will now be able to participate in crypto. Overall, it’s a positive move for the industry,” said Nischal Shetty, CEO, Wazir-X.

Additionally, Sitharaman also announced that the Reserve Bank of India (RBI) is going to introduce a digital currency, the Central Bank Digital Currency (CBDC), in the next financial year. The CBDC has been in the works for several months now.

“Introduction of a central bank digital currency will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,” Sitharaman said.

“The Digital Rupee (CBDC) will be a game-changer for the Indian economy. It will enable efficient and cheaper currency issues and circulation. This is not only a win for Digital India but also for the adoption of blockchain technology, opening up new doors for innovation, monetary efficiency and a robust economy. For the long term, India will have the necessary infrastructure in place to emerge as a global financial technology leader in the coming decades,” said Thomas commenting about the Budget 2022’s CBDC-related announcement.

Also Read: Budget 2022: Crypto tax signals acceptance of virtual assets, say exchanges

Also Read: What is Digital Rupee and how it is different from Bitcoin and other cryptocurrencies