Until a day before the Budget speech, most of us — especially blockchain aficionados — were eagerly awaiting some substantive announcement on cryptocurrencies. So much so that even media queries were being posed to the Principal Economic Advisor Sanjeev Sanyal on Monday when he addressed the media to announce the results of Economic Survey 2021-22.
However, like a characteristic bureaucrat, he brushed his hands off to smartly put the ball in the Parliament’s court.
“As you know, this is a matter of some debate, both inside the government, in the Ministry of Finance, and even in Parliament. So, this is something that is currently in discussion…… a balanced view on this will be taken,” said Sanyal on Monday in response to a query on the future of cryptos in India.
Tax on crypto transactions
But when the budget day eventually came, the much-awaited news on cryptocurrency did arrive. Well – it was not about regulating the cryptos or even about putting a framework in place, but was about taxing the transactions relating to digital assets.
Tax on the transfer of digital assets such as cryptocurrencies and NFTs will now be levied at the rate of 30 percent, announced Union Finance Minister Nirmala Sitharaman during the Union Budget 2022 speech.
While expressing the government’s intent to tax the profits made on digital assets, the FM said, “There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific 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.”
To explain it further, she made it amply clear that no exemptions or deductions will be allowed on the profit. “No deduction in respect of any expenditure or allowance will be allowed except cost of acquisition,” she added further.
Another clarification that is likely to irk the cryptocurrency and blockchain enthusiasts is that the losses incurred on these assets cannot be adjusted against profits made through other sources.
“Loss from the transfer of digital assets cannot be set off against any other income,” she clarified.
When digital assets are given as a gift to someone, they will be taxed in the hands of the recipient — and understandably so.
TDS on payment in digital currencies
Well, the implicit deterrence to trade in crypto assets doesn’t stop here. Even digital currency transactions would also attract TDS at the rate of one percent. “In order to capture transaction details, I also propose to provide for TDS for payment in relation to payment of virtual digital assets at the rate of one percent above a monetary threshold,” the FM said.
Rolling out of digital currency
While announcing the tax on crypto transactions, the FM also stated that the RBI would roll out a central bank digital currency in the next fiscal.
“Introduction of a central bank digital currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce digital rupee using blockchain and other technology to be issued by the RBI starting 2022-23.”
So, we have seen that the government may not have unveiled a well-defined framework to regulate cryptocurrency, but it has surely taken some baby steps which underscore one key thing i.e., blockchain and cryptocurrencies are here to stay.