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India imposes 30% tax on cryptocurrency income

02:00, 2 February 2022

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A hand illustrated in the Indian flag giving a golden bitcoin to outstretched hands of the poor
To add to crypto investors’ potential tax bills, any losses in digital assets transactions cannot be squared against profits in other investments that reduce the tax liability – Photo: Shutterstock

The Indian government has decided to tax profit on cryptocurrency gains at a hefty 30%, it was revealed by finance minister Nirmala Sitharaman on Tuesday (1 February).

Outlining the government’s federal budget for the financial year beginning 1 April, Sitharaman also said that in addition there will be a 1% tax deducted at source, which means the seller receives the proceeds minus that percentage in a transaction.

To add to crypto investors’ potential tax bills, any losses in digital assets transactions cannot be squared against profits in other investments that reduce the tax liability.

Crypto “like gambling” 

“For the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent,” Sitharaman said during the parliamentary session. “Further, no deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. The loss from transfer of virtual digital asset[s] cannot be set off against any other income.”

In an indicator of Indian authorities’ attitude towards crypto investing, Sitharam likened the profits from this sector to those from gambling and horse racing.

However, the government’s announcement regarding the taxing of income from cryptocurrency transactions cements the legality of the new-age digital currency, and should increase investor appetite for the asset class.

Prior to the budget there was speculation India could impose a complete ban on such transactions, like its regional rival China.

Move gives clarity on crypto 

“There is more clarity now that the government has no intention to ban cryptocurrency, which was pending for a long time. It signifies that there is no intention to stop the crypto activity but rather [it] wants to go in a direction with specific guidelines and regulations. The taxation on crypto is a step in that direction,” said Sumit Gupta, co-founder of the CoinDCX platform.

Cryptocurrency trading platforms have struggled for some time in India to gain recognition and advancement. Despite their nearly decade-long presence in India, these platforms only count around 25 million active users out of the 1.4 billion-populated-country.

A lack of understanding of the cryptocurrency market dynamics and valuations, a lack of legal framework and regulatory guidelines, and concerns over safety of investments in the relatively new-formed currency has prevented investors from accessing the market.

“A new India”

Kashap Mahavadi, founder and CEO of Dinero Neobank, a financial technology platform, welcomed the news. “Digital virtual assets have been finally provided legitimacy by allowing them under a tax regime. All virtual, digital assets will now be taxed at 30%. This is a sigh of relief for the crypto industry – and a booster for innovation.” 

“India is now bringing out a revolution in financial systems. This is the beginning of a new India,” Mahavadi added.

Still, many service providers refrained from making public comments after the budget announcements as a number of questions remain unanswered.

“Why the punitive action of not letting losses be offset while calculating tax, contrary to the treatment on other asset classes, is a question that arises. What is the reason for the differential treatment?” asked a former lawmaker who asked to remain anonymous. 

India’s 2022 Finance Bill, as part of the federal budget, defines virtual digital assets “as any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value stored or traded electronically”.

Crypto bill yet to be debated

Sitharaman announced in November 2021 that she would introduce a new cryptocurrency bill, The Cryptocurrency and Regulation of Official Digital Currency Bill, in the parliament’s winter session in December after it gained clearance from the federal cabinet.

It wasn’t placed for discussion in that session and is expected to be discussed in the current budget session which ends 12 April. The bill has gone through a few rounds of revisions but has not been debated over in the parliament in order to be passed as legislation.

The government’s intent on holding back was to improve the bill, Sitharaman said.

“The risk that cryptocurrencies can lead to undesirable activities is also being closely monitored and being taken into consideration by the government,” she concluded.

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