One of the big takeaways in Budget 2022-23 is the provision related to cryptocurrencies or virtual digital assets. Profits from all virtual digital assets will be taxed at 30% while every crypto transaction will also attract 1% TDS. Finance minister Nirmala Sitharaman simultaneously announced the issuance of the RBI digital currency sometime this year, which is not to be confused with private cryptocurrencies. In fact, in the post-Budget press conference, Sitharaman made this distinction very clear, emphasising that the only digital currency is the one that RBI will be issuing.
This is certainly a welcome move. For, there was considerable lack of clarity around cryptocurrencies given the absence of a regulatory framework. Plus, there were previous indications from the government that it wanted to ban all private cryptocurrencies. However, cryptos are a reality and crores of Indians have already invested in the virtual digital assets. Thus, banning them completely would have been counterproductive.
In that sense, the Budget announcement strikes a good balance by treating cryptos as an asset class alone and taxing them at the highest bracket. This clears the air around the legality of cryptos, but at the same time creates substantial disincentives for investors looking to make a quick buck. Add to this the launch of the RBI digital currency and the message is clear: The government continues to see private digital assets as risky but will reluctantly live with them. Given that cryptos aren’t backed by central banks and can be extremely volatile assets, this is a sensible approach. Allowing investors with appetite for risk to continue to dabble in cryptos while clarifying the red lines is the best that the government could have done. This will also enable innovations in the underlying technology. A proper regulatory framework for virtual digital assets flowing from the Budget guidelines is now eagerly awaited.
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