Crypto industry celebrates breakthrough moment, but 30% tax a concern.
For years, there have been reports of an imminent ban on private cryptocurrencies in India but today’s announcement closed that chapter, crypto industry stakeholders, including founders, venture capitalists and policy experts, told. To be sure, several lawyers said the industry remains in a legal grey area, and that only a full-fledged cryptocurrency bill would give these assets full legal status.
What is a virtual asset?
"Virtual assets" means any information or code or number or token (not being Indian currency or any foreign currency) generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes and can be transferred, stored or traded electronically. It also includes Non-Fungible tokens (NFTs) and any other tokens of similar nature.
Is crypto now legal?
“Though the government has recognised that crypto transactions are increasing in number and there is a need to tax the gains from crypto trading, it does not imply that cryptocurrencies are now legal. The Supreme Court in various verdicts has upheld that income from even unlawful or illegal sources must be taxed.” Experts say that while gains from cryptocurrencies will be taxed, the details on its legalities, classification of various cryptos and regulation will only be disclosed in the impending crypto bill.
The long-pending crypto bill was to offer much-needed clarity on cryptocurrency’s legal status in India. “The recognition that is accorded to crypto today, by means of a proposed amendment to the Income Tax Act should actually not be used to infer anything further.” However, a proper definition of cryptocurrencies and amendments to the Income Tax Act further reaffirm that the government would regulate cryptocurrencies, experts said.
“It does suggest that the government will not ban cryptocurrencies but a 30 percent tax and TDS on top of that may mean that the government will probably bring in stringent regulations.”
How will taxation work?
In the Budget memorandum, the government has detailed that a 30 percent flat tax will be applicable to income from virtual digital assets. Unlike gains from equities held for a certain period, gains from crypto trades will not attract different tax slabs based on how long they are held. This will be applicable starting April 1, 2023 and the taxes will be levied from the assessment year FY24.
The memorandum said gains from each asset would be separately taxable and even if in the same year there is a loss on the transfer of digital assets, it cannot be set off.
Why 1% TDS, and its impact
The Finance Minister said 1 percent TDS was being implemented to track crypto transactions so that the government won’t have to depend on crypto exchanges to collect data of each transaction and the volume. Despite the high tax, the industry sees this as a positive sign, drawing comfort from the fact that cryptocurrencies would not be banned and instead would be regulated.
"As of now, we don't see much panic but investors have a mixed response to the announcement. But going forward, maybe we will see an impact on trading volumes if people see more value in buying and holding for longer term. We may see people holding on to their investments rather than selling because selling will attract taxes."
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