Union Budget 2022: All you need to know about Crypto Tax

Cryptocurrencies trade has become popular among global investors, traders, and even common people. A huge number of Indians have also been investing in these digital assets. The eradication of third-party involvement and access to global funds has made Indians, as well as the global population, invest in this new form of economy. However, till last year, no taxes had been applied on the capital earnings through crypto trading. 

But, recently, Nirmala Sitharaman, the union finance minister of India, declared earnings from digital asset trade are liable for 30% tax payment. She also made it clear that there will be no exemptions, and deductions will be entertained. This move from the union finance minister is gaining traction in the name of 'crypto tax.' 

So, let's explore everything you need to know about crypto tax and how Indian investors are taking the news. 

What Union minister of India quoted on crypto tax?

Nirmala Sitharamna tabled the 2022 Union Budget on Tuesday. As per the Union Minister, crypto users receiving gifts as crypto coins will also have to pay the 30% tax rate from their end.  

Aside from this, a significant announcement of RBI issuing digital rupee in the following financial year also took place. During the budget speech, Nirmala Sitharaman stated that India is experiencing a "phenomenal increase in transactions in virtual digital assets." Hence, it becomes crucial to establish some organized tax regime for the situation. 

More about the adoption of the digital rupee

The creation of the digital rupee is going to be the first Central Bank Digital Currency (CBDC) project of India. Furthermore, the central government will entirely monitor and regulate this digital rupee. These currencies ought to get complete support from the issuing authority. So, we can say the Reserve Bank of India will be the official guarantor of the Indian crypto or digital rupee. It will be similar to RBI authority over existing Indian coins and notes. 

As mentioned earlier, the exchanges of all such virtual/ digital assets will have a 30% tax as per regulations. And these assets involve both crypto coins and NFTs or Non-fungible tokens. One more factor to note is that any losses on such digital assets won't be offset to a postponed date. In simple words, the occurrence of any loss at the time of asset trading won't set off using other sources of income. And it will not move on to proceeding years. 

What are the regulations and important aspects regarding crypto tax?

Below are given all the vital information you need to know about the newly announced crypto tax by the Union Minister of India: 

• Except for acquisition cost, no provision of deduction with respect to any allowance or expenditure will be given at the time of income calculation. 

• Further elaboration of the tax model for digital rupees states that all crypto transactions exceeding a defined monetary threshold will have a TDS deduction of 1%. This practice will help finance authorities track the movements of these types of currencies across the economy. 

• As already mentioned earlier, Sitharaman, during the budget speech, stated that recipients of crypto assets as gifts would have to pay the proposed tax. 

• The crypto tax proposals will come into action from April 1 once the Union Budget passage completes in the Parliament. 

• The launch of the digital rupee in the years 2022-2023 by the Reserve Bank of India will be based on blockchain technology. 

• Experts stated that the 30% tax on the income gain from the sale of crypto coins is equivalent to the rate of tax on winning cash from game shows, lotteries, puzzles, and others. 

• The chairman of Nangia Andersen India, Rakesh Nangia, stated that the government had taken a predictable and stable tax regime. And the transactions of digital/virtual assets have only been taken under the ambit of taxation. The statement was recorded by the PTI news agency. 

• According to the 2022 finance bill, a virtual/digital asset is a code or information or token, or a number generated from a cryptographic mechanism. It gives a virtual representation of the stored value and is electronically traded. 

What are the opinions of Indian stakeholders on crypto tax?

Multiple Indian-based stakeholders, such as COINSWITCH Kuber, are backing up the approach of the Indian government towards the crypto assets. As per supporters, the Union budget offers clarification of taxation. Also, it indicates the government's goal to adopt a business-friendly method at the same time protecting the exchequer and consumers' interests. 

They are willing to work with the authorities to take up crypto-asset taxation at face value with existing classes of assets. The participation of stakeholders in the vision of government regarding cryptos will boost economic growth, as stated by the CEO and Founder of CoinSwitch. 

However, many major stakeholders also demanded more clarity on detailed GST and taxation rules on cryptocurrencies. These steps towards the adoption of digital currencies show that the government is definitely not trying to ban cryptos in the future. This kind of recognition of digital money across the National Budget and declaration of official tax rules has been making investors feel enthusiastic regarding their investments. 

So, does this mean crypto has become a Legal tender in India? 

The New Union Budget assures India's movement towards a technically savvy and progressive future. However, cryptos still haven't got the legal tender status yet. But, cryptocurrency acceptance is indeed a significant move in itself. Moreover, many leading crypto trading platforms are also taking the side of the government's stance. So, it totally depends on the functionality and success of digital money to boost its chances to become a legal tender in India. 

Wrapping up

The Indian government has surely taken a noticeably valuable stance towards cryptocurrencies this year. The crypto community in India is hoping for a positive outlook in terms of the adoption of digital money. And, it can be a great thing for the development of cryptocurrencies and related applications such as dApps, Web3, DeFi, and others. It can further allow people to enjoy faster transactions with the added security of blockchain technology.