Indian Finance Minister, Nirmala Sitharaman finally shed light on the taxation of liabilities of digital assets like cryptocurrency and stated that income from any source of digital assets will be taxed at 30%. This is not it. There are various other regulations that came out under the crypto budget 2022.
While laying forward the Union Budget 2022, she stated that any income earned from the transfer of any digital asset shall be taxed at 30 percent. No exemptions and deductions are allowed. Also, loss from the transfer of similar assets cannot be set off against other incomes. There will be a 1% dedication of tax on relevant transactions and gifts of similar assets will also be taxed, the latest crypto budget 2022 states. Sithraman said,
” Any income from virtual digital assets is taxable at 30%; there will be no deduction with exception of the cost of acquisition; TDS applicable beyond a specified monetary threshold; gift of virtual currencies taxable in the hands of the recipient.”
In a gist, Sithraman presented a flat 30% tax on virtual asset gains irrespective of long or short term holdings. In case there is any loss, those cannot be offset against any other income.
Crypto Budget 2022: Is Digital Asset Now A Legal Status in India?
It is being said that the recognition of virtual assets under the income tax is not similar to giving it a legal status in India. This was cleared in the Union Budget session of this year. L Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys said,
“This move is not surprising given the Finance Minister’s response to queries raised in the Rajya Sabha in November 2021 regarding cryptocurrency and NFT regulations. “The bill provides for the definition of a virtual digital asset which is wide enough to cover emerging digital assets including NFT, assets in meta verse, digital currencies, tokens, etc. The recognition of digital assets under income tax is not akin to granting legal status.”
The bill illustrates to riders that there shall be no deduction in respect of expenses incurred on such digital assets except the acquisition of cost. The latest crypto tax seems to be a hindrance to the interest of all the investors and all who are associated with gambling. With an aim to monitor the transaction of crypto, a TDS of 1% shall be applied on the discharge of consideration during the transfer of digital assets. The bill also states that there will be taxation on gifts of digital assets in the recipient’s hand. This will bring with it added challenges in the function of crypto exchanges all over the globe and also privacy issues for individuals, as stated by Narayanan.
Its Implication To Crypto Investors
This means that if an investor is holding digital currencies, then the income that is obtained from such investments will be taxed at 30%. Any profit that is generated through trade iof digital currencies would be taxed at 30 percent that will include transfer and gifts of digital assets from one wallet to another that is owned by varied individuals.
Investors who are trading with digital currencies after this crypto budget 2022 will now be required to report losses or gains which cannot be associated with any other type of investment. The government has fixed the taxation rate to 30 percent to make sure that all the investors pay a portion of their profit to the government in taxation form.
What Should The Investors Do?
Most commonly used digital currency tax calculation procedures include HIFO (highest in first out method), and last in four out procedures. Among the above stated methods of tax calculations, the most beneficial method is the HIFO approach for investors who are interested to avail of the highest cost basis tokens and use that towards the coins sold. This would decrease the taxable profit amount to a great extent and offer some relief to the investors.
Is The Tax Regime Severe?
That tax approach that has been introduced is quite severe and is not in lines with what the industry was anticipating. The 30% tax rate and limitations to set off the losses and no deduction for the transactional expenses is a prominent deviation from the prevailing principle of tax of taxing capital gains or business income. Presenting the tax withholding procedure is a way to gain access to all the transactional data.
The provision for taxation on virtual assets seems to be a little harsh as the gifts in digital assets are said to be taxed as well. Along with that, not offering any deduction, in respect to transactions where there is a loss of virtual assets may be subject to various constitutional challenges.
Final Definition Of Taxation On Digital Asset
The real definition of taxation of virtual assets has now been defined with precision after so much wait. So now the investors at least know what tax filers can expect from this year. Investors might have wished for lower LTCG taxes and carry forward losses that are similar to housing or equity. But this is at least a beginning. After this crypto budget 2022, the investors would await for more clarification in the future towards the rollout of all these measures. The government is ready to bring the CBDC (Central Bank Digital Currency) that is starting from 2022-23.
Does This Imply That Crypto Assets Will Not Be Banned?
Taxation of digital currency has driven away from the worry of the transaction of digital currencies being banned in India because of the introduction of the Cryptocurrency and Regulation of Official Digital Asset Currency Bill, 2021. However, the rate of taxation that has been introduced seems to be an impediment to the interest of the investors.
It is considered as a welcoming move by the governing authorities to identify this as an alternative class of investment from debts, traditional equities. Overhangs and uncertainties have now been ended and the move by the government suggests that cryptos are nowhere to stay. Then, what does it mean to the NFTs? According to Keyur Patel, Chairman & Co-Founder, GuardianLink and Co-Founder, BeyondLife.club,
“NFTs are nascent in its classes and with such taxation will have to eventually adjust to grow the developing ecosystem. Worldwide NFTs are still classified as non taxable assets, and it is imperative that the adjustment in understanding that Crypto Token is different from digital NFT should be taken into consideration for future amendments and the government should allow industries like Gaming, Interactive Immersive Museums and other edutainment NFT frameworks to succeed without tax burden.”
Any income earned from the digital asset will be taxed at a rate of 30 percent as stated by the Finance Minister, Nirmala Sithraman in the latest crypto budget 2022. One percent TDS will also be levied on these types of investment and any form of digital assets as gifts or transfers will also be accompanied by taxes. These also include NFTs (non fungible tokens) and any other token that is similar to this. Along with that, the Finance Minister also declared that the Reserve Bank of India (RBI) will also be launching its digital rupee in 2022-23, which marked the initial official statement from the Union Government on its launch.