Many see the government announcement as an acknowledgment of the crypto industry as an emerging asset class
After a long wait and mixed signals over the past two years, there is some clarity on the taxation of crypto income. Presenting the Union Budget on February 1, Finance Minister Nirmala Sitharaman announced that income from the transfer of digital assets will be taxed at 30%. She makes it clear that no deductions or exemptions are allowed, except for acquisition costs. She also said that crypto gifts will be taxed at the same rate on the recipient side. This brings great clarity to those trading in the emerging industry. So far, they are not sure how their income from cryptocurrency trading will be taxed.
What is digital asset?
While the government has not specifically mentioned cryptocurrencies, they have classified them and related areas powered by blockchain technology – like NFT – as digital assets. And so this new tax regime is simply called a “crypto tax.”
What does that mean?
Many see the finance minister’s announcement as an acknowledgment of the crypto industry as an emerging asset class. The Reserve Bank of India (RBI) has previously made it clear that it does not like private virtual currencies like Bitcoin, Ethereum and others. It said it is working on its own central bank digital currency and will launch it after due diligence. The finance minister in his Budget speech said the RBI digital currency will launch this year. However, some people expressed concern about the tax rate being too high. They say the move is aimed at discouraging investors and reducing the attractiveness of the cryptocurrency.
How will the tax be calculated?
The new tax regime will take effect from April 1, after the union budget is passed in the National Assembly. The finance minister said there will also be 1% TDS on crypto transactions. Any loss incurred as a result of the transfer of virtual digital assets cannot be offset from other sources of income.
If you invested Rs 1,000 in cryptocurrency and then sold that coin for Rs 1,500, you don’t have to pay 30% tax on the total amount. You will have to pay tax on profits or income – that is Rs 500.
However, this does not mean that cryptocurrency has become a legal tender in India. It just means that the government recognizes cryptocurrencies as an asset class and will monitor cryptocurrency transactions from now on.
