Implications of India’s tax rules for crypto

Crypto - bill key highlights
• In her Budget 2022 speech, finance minister Nirmala Sitharaman said the transfer of virtual digital assets would attract a 30% tax.
• Even though India's Cryptocurrency Bill has not been presented or considered in Parliament, this clearly relates to cryptocurrency.
• Proposes to cover crypto and NFTs as virtual digital assets under the newly added clause 47A.
• Proposes 1% TDS under the newly added Section 194S.
• Proposes to amend Section 56 to include virtual digital assets as taxable gifts.
• Loss is not allowed to be either carried forward to next year or set off against any other income in the same.

What Is A Virtual Digital Asset?
The ministry of finance has proposed a new clause 47A under Section 2 of the Income Tax Act that defines the virtual digital asset as:
• Any information, code, number, or token (not being Indian or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account, including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically
• This is the first time the Indian government has defined a broader digital asset that includes crypto unless otherwise specified by Executive order.

Slapping A 30% Tax On Income From Crypto-Assets And NFTs
• The Finance Bill, 2022, has proposed the insertion of Section 115BBH, according to which any income from the transfer of any virtual digital asset will be taxed at the rate of 30%.
• The rest of the income will be taxed as per the existing slabs.
• Here is an example to clarify it :
Suppose you invest INR 1,000 in a crypto asset, say bitcoin, and sell it for INR 1,200 after some time. According to the latest tax proposal, you will have to pay a tax of INR 60 on INR 200 you have gained from the transaction. The same tax rule will apply to NFTs.

FAQs
• From when will the taxation come into effect?
The government will levy 30% tax on gains made from any private digital assets from April 1, 2022.
• Is any kind of deduction allowed?
No deduction in respect of any expenditure or allowance to be allowed while computing such income except cost of acquisition.
• Will the Digital Rupee also taxed?
No, RBI's Digital Rupee will not come under this taxation rule. All private cryptocurrencies and virtual digital assets other than Digital Rupee will be subject to 30% taxation.
• What about regulation of Cryptocurrency
On regulation of cryptocurrencies, Sitharaman said that the government is doing. stakeholders' consultation on regulating the virtual assets.


#OPINION
• The budget was mostly beneficial for the crypto business, however it was a little bittersweet.
• We must keep in mind that this is only the start of a wider process of mainstream acceptance.
• To come up with improved methods or procedures, several talks are required.
• We are optimistic that the necessary steps will be made to assist India in developing a digital-led growth plan that would enable it to become a $5 trillion economy by 2025.

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