TOPLINEIndia’s government on Tuesday announced plans to impose a 30% tax on income gained from digital assets like cryptocurrencies and non-fungible tokens (NFTs), in a move that will assuage earlier concerns about the country imposing an outright ban on cryptocurrencies. KEY FACTS
- Income generated from the transfer of any virtual assets will be taxed at 30% along with an additional 1% tax deduction at source during such transfers, finance minister Nirmala Sitharaman said in her annual budget speech in Parliament on Tuesday.
- The tax on cryptocurrencies—unlike the U.S.—will be separate from taxes levied on capital gains from other sources like investment in stocks and funds.
- Crypto investors in the country will also not be able to offset their losses from cryptocurrencies against any other source of income.
- Sitharaman also stated that individuals who receive digital assets as gifts would also be taxed under the proposal.
- All proposals are included as part of India’s annual budget bill which is expected to be passed by the parliament later this month, before going into effect on April 1.
- Sitharaman also said that India’s central bank will issue the Digital Rupee—its own digital currency on the blockchain—sometime during the 2022-23 financial year.
WHAT TO WATCH FOR
The budget proposals have triggered some confusion about the legality of cryptocurrencies in India, as the government’s Cryptocurrency Bill is still in its drafting stage and is yet to be introduced in parliament. While the opposition party has sought clarification from the government, Sitharaman told the press that the cryptocurrency bill is still being formulated but she did not want to wait for the regulation to go into effect before “taxing people who are earning profits.” Most observers however believe that Tuesday’s budget will assuage concerns about a potential ban on cryptocurrencies.
Sumit Gupta, the co-founder, and CEO of one of India’s largest crypto exchanges, CoinDCX, tweeted: “Taxation of Virtual Digital Assets or #crypto is a step in the right direction. It gives a lot of clarity. India's focus on digital innovation and promotion of blockchain is welcome. The details need to be studied to comment further. But it's great news for crypto investors in India”
Ahead of Tuesday’s budget announcement, there was a lot of speculation about the incoming cryptocurrency regulation in India. The Reserve Bank of India, the country’s central bank, had reportedly been pushing for a complete ban on all cryptocurrency transactions. Despite these concerns, investments in digital assets had been rising steeply across the country. Last month, Binance-owned Indian exchange WazirX reported that yearly trading volume on its platform exceeded $43 billion in 2021, at a “1,735%” growth from 2020. However, the steep tax rate and inability to offset losses against other income sources means that the government may be trying to dissuade investment in the volatile assets instead of outright banning them.