June 26, 2022

Cryptic signs: Tax on e-assets opens gateway to brave, new virtual world – Times of India

It may not sound logical, but cryptocurrency prices rose in response to the Union Budget’s imposition of a 30% tax on income earned from transfer of virtual digital assets (VDAs), and its decision to bring in a TDS mechanism to track such transactions. The Budget’s objective was to rein in speculation in cryptocurrency and non-fungible tokens (NFTs) and to protect investor interest. But the markets also saw it as a de facto legitimisation of these new age instruments.

Many in these markets were worried that the government might ban them. The fact that it chose to take what looks like the first step to bringing a regulatory framework around VDAs clearly came as a relief. “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,” finance minister Nirmala Sitharaman said in her speech. Besides the flat rate of 30% on income from transfer of VDAs, no deduction will be allowed in respect of any expenditure while computing such income except cost of acquisition. Further, loss from transfer of virtual digital assets cannot be set off against any other income.

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With NFT artworks gaining popularity, gifts of virtual digital assets are also proposed to be taxed in the hands of the recipient. To capture transaction details, a TDS of 1% will be imposed on all such transactions over Rs 50,000.
The Budget’s decision to come out with a central bank digital currency (CBDC) was also seen by the industry as a step toward making India a global hub for the Web 3.0 economy.

Sumit Gupta, co-founder & CEO of crypto exchange CoinDCX and co-chair of industry body BACC, said that taxation is a “step in the right direction”. He said the move provides clarity and confidence to the industry.
Ashish Singhal, founder & CEO of crypto bourse CoinSwitch, said the Budget move shows the government’s intent to take a business-friendly approach while protecting the interest of consumers and the exchequer. He said they hope to work with the government to help bring crypto asset taxation on a par with other asset classes. The 30% rate is higher than for most other asset classes.

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Nischal Shetty, founder & CEO of crypto exchange WazirX, said the government’s move “will pave the way for crypto adoption and put India in the front seat of innovation”. He also hoped that this would remove any ambiguity for banks, and they would provide financial services to the crypto industry.
However, some noted that the definition of VDA in the finance bill only explicitly mentions NFTs and the decision to include or exclude cryptocurrencies depends on executive action, and taxability does not mean legality. The FM also clarified in the press meet that any cryptocurrency other than the CBDC proposed to be issued by the RBI is not considered as currency by the government.
Dinesh Kanabar, CEO of tax firm Dhruva Advisors, noted that India still does not have a crypto bill, and all it has is a separate regime for taxation of all digital assets on a standalone gross basis, without deduction of corresponding losses.
Nithin Kamath, founder & CEO of online brokerage Zerodha, said that crypto will only be legal after the crypto bill, and until then, regulated entities in India can’t offer trading in crypto.

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