FM Sitharaman announces 30% tax on virtual assets
The Union Finance Minister Nirmala Sitharaman said that the income from virtual assets will be taxed at 30% and 1% TDS (tax deducted at source) will be deducted on these investments.
TDS will be imposed on payments for the transfer of crypto assets at a rate of 1% for transactions over a certain threshold. Furthermore, gifts of crypto assets will be taxed in the recipient’s hands.
The announcement of the crypto tax regime by introducing flat 30 percent taxation on income from crypto and digital assets in the Budget 2022-23 indicates the possible future of crypto currencies as a financial asset in the domestic markets in times ahead.
Over the past year, there has been a boom in individuals investing in crypto currencies, with exchanges crossing millions of users
As per the government, ‘virtual assets’ is proposed to mean any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is 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 and includes its use in any financial transaction or investment, but not limited to, investment schemes and can be transferred, stored or traded electronically.
Nirmala Sitharaman said in her Budget speech, “There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime. Accordingly, 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 percent.”
The decision to tax digital assets came as a major setback for the existing crypto investors in the next financial year and might discourage investments in crypto currencies.
Notably, as per industry estimates, there are 15 million to 20 million crypto currency investors in India, with total crypto holdings of around Rs.40,000 crore.
A crypto currency is virtual or digital money that takes the form of tokens or coins. The ‘crypto’ in crypto currencies refers to complicated cryptography that allows for the creation and processing of digital currencies and their transactions across decentralized systems.
The government is yet to confirm whether and how it will allow cryptocurrencies, though sources in the Finance Ministry and experts in the industry have pointed out that crypto currencies will be treated as a digital asset in times to come.
At present, the government is preparing legislation to regulate the use of crypto currencies in the country.
Principal Economic Advisor Sanjeev Sanyal has said that the government has to take a balanced and comprehensive view on crypto currencies. “This is a matter of some debate, both inside the government, in the Ministry of Finance, and even in the Parliament. Since there are some financial stability issues and concerns, a balanced view on this will be taken ultimately,” he said.
It must be noted that the Reserve Bank of India (RBI) has voiced “serious concerns” around private crypto currencies on the grounds that these may cause financial instability.
Meanwhile, a new digital rupee powered by blockchain technology will be issued by the RBI in 2022-23. “Introduction of a central bank digital currency will give a big boost to a digital economy. The digital currency will also lead to a more efficient and cheaper currency management system,” said the Finance Minister.
The Central Bank Digital Currency (CBDC) is a digital form of fiat currency that can be transacted using wallets backed by the blockchain and is regulated by the central bank.
CBDC is different from decentralized virtual currencies and crypto assets, which are not issued by the state and lack the ‘legal tender‘ status. It enables the user to conduct both domestic and cross-border transactions which do not require a third party or a bank.
India would roll out its digital currency in the next financial year. However, in October 2021, Nigeria launched eNaira, which is a non-interest-yielding CBDC. The Bahamas and five other islands in the East Caribbean have already introduced CBDCs.
[With Inputs from IANS]
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