Cryptocurrency is not a new term to Indians. Since the launch of Bitcoin in 2009, Indian investors have been rigorously following cryptocurrency. While Bitcoin took time to establish investments in India, other crypto coins were quick to make their entry to the Indian market. In fact, India ranks first in the total crypto investors globally. More than 15% of the population has currently invested in cryptocurrencies. If you want to start bitcoin trading check the best bitcoin debit cards of all time.
Similar to investors, even the Indian government has been following the concept of cryptocurrency. Both central banks and tax authorities have been reviewing crypto investments. Time and again crypto investors have been raising the idea of the Indian government legalizing crypto payments.
During the budget session in 2021, the finance minister had mentioned that the government is aware of crypto investments and this component cannot be kept aside. The budget session for 2022 provided much-needed clarity on this investment model.
Understanding crypto tax
During the budget speech, the union finance minister announced that the government shall impose a 30% tax on crypto investments. This is the highest tax slab for any investment. She also made it clear during her announcement that losses in crypto trading will not be considered during the taxation process. Any capital losses on crypto trading will not offset other income. Hence, as an investor, it is inevitable for you to avoid taxation on crypto investments.
Her speech also clarified that all crypto transactions will attract an additional 1% source at deduction. Now in case you are looking at buying crypto for gifting purposes then this will also attract a tax slab of 30%.
Post this announcement there have been mixed reactions from crypto investors. The Finance Minister also clarified that the revised tax implications shall be effective April 2022.
Understanding crypto tax in detail
There have been multiple inputs and apprehensions going on in the new tax scheme. To make it simple, let us break down the announcement and tax scheme into three aspects.
Lack of clarity on the period from which tax slabs shall be applicable. There is no mention if taxes shall be applied retrospectively. Clarity is still sought in this model. While the taxes will be levied effective April 2022, there is still confusion on the investment period from which these taxes apply.
There is no clear articulation between long-term and short-term investments. In the case of equity and share market holding, different tax slabs are applicable based on the time during which the investment is held back.
The government has also clarified that every crypto transaction will be monitored. Now how is this possible? The 1% TDS collected at the source will enable the government to track every transaction. This breaks the idea of anonymity in transactions which is the basic block of cryptocurrency.
Understanding digital rupee
In addition to crypto taxation, the Finance Minister also clarified that the Reserve Bank of India shall be coming out with a native digital rupee in 2022. This digital rupee will be developed using cryptography and blockchain techniques. But no clarification was provided if the digital rupee will also fall under the same tax slab similar to cryptocurrency investments. While we await other updates, this is seemingly interesting and welcoming news to many crypto investors.
How did Indian investors react to this announcement?
While the country was anticipating a possible bank on crypto, this budget announcement came as a relief. However, there have been mixed reactions to this news amongst investors. The tax regimen is on a higher scale. But crypto exchanges based out in India have welcomed this news positively.
The Finance minister also clarified that the needed clarity on digital rupee and crypto tax slabs will be provided in the coming days. It is also anticipated that investors may move their investments to other crypto exchanges. Exchanges that operate out of India provide lesser tax limits thereby reducing revenue to the government. There is also clarity sought on payments made through crypto coins for buying goods and services. If an investor pays for goods and services using available crypto tokens, how will this transaction be accounted for? Will there be extra tax applicable on such payments?
While India introduced taxes on crypto investments, Thailand on the other hand revoked its taxation rule on crypto investments.