The government has put an end to the long time speculation on cryptocurrencies. Finance minister Nirmala Sitharaman has introduced the much-awaited crypto tax regime in the Budget announced on Tuesday, where a blanket tax rate of 30% is applicable on transfer of ‘virtual digital assets’ (VDAs). Few hours after the Budget announcement, the FM, in the post-budget-conference, made it crystal clear that while crypto can not be a currency, it will be treated as an asset in the country.
"A currency is a currency only when it is issued by the central bank, even if it is a crypto. Anything outside of that, loosely we refer to them as cryptocurrencies, are not currencies,” Sitharaman said.
She added, “We are not taxing the currency (Digital Rupee) that is yet to be issued by the RBI. And what the Reserve Bank issues is the digital currency. Everything that prevails outside of it, in the name of digital whatever, are assets being created by individuals. And, in transacting those assets if profits are being made, we are taxing that profit at 30 per cent.”
The FM proposed to introduce Digital Rupee (currency), using blockchain and other technologies, to be issued by the Reserve Bank of India (RBI) starting 2022-23. A Central Bank Digital Currency (CBDC), as defined by the RBI is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.
The FM further said that the government is tracking every trail of money by imposing TDS on every transaction in the crypto world.
Later during the Budget day, Amitabh Kant, CEO, NITI Aayog, confirmed that the government is not banning cryptos in the country. “Once you start taxing, it means you will have a regulatory mechanism whether some aspect of it will have to be regulated by RBI or SEBI. The Budget provides absolute clarity. Government has not banned cryptos, it has in fact, treated crypto as an asset class, defined as a virtual digital asset,” Kant told Fortune India.
While treating the cryptocurrencies or crypto assets as gambling by proposing the high income tax rate of 30% is debatable, the whole event has cheered industry which has been waiting for clarity on regulations since long. Nischal Shetty, founder of the country's largest crypto exchange WazirX, provides tax implications on the virtual digital assets as proposed by the Government in simplest form as below:
Section 115BBH: From Financial Year (FY) 2022-23, any income earned (sale consideration (minus) cost of acquisition) from the transfer of virtual digital assets like cryptocurrencies and NFT will be taxed at 30% flat.
Section 194S: From July 1, 2022, any person (purchaser) responsible for paying any sum as consideration (in cash or kind) for the transfer of a virtual digital asset will have to deduct 1% tax and deposit this tax amount with the government (subject to conditions). More clarity on the operational aspects of this provision is yet to be received.
Section 56: In addition to the above, virtual digital assets received as gifts will have to be disclosed and offered for tax (by the receiver of the gift) under the head ‘Income from other sources'.