Cryptocurrencies are not currencies, currency issued by RBI will be digital currency, says FM
New crypto tax rule explained in 10 points
The government has taken a step closer to adopting cryptocurrencies as it plans to tax the income from the transfer of virtual assets at 30%, as announced by Finance Minister Nirmala Sitharaman in her Budget 2022 speech, effectively removing uncertainties about the legal status of such transactions.
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, says the Budget document.
- No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of virtual digital asset cannot be set off against any other income.
- Further, in order to capture the transaction details, I also propose to provide for TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold.
- Additionally, Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.
- Aside from placing earnings from cryptocurrencies and non-fungible tokens (NFTs) in India’s highest tax band, Sitharaman also said losses from their sale could not be offset against other income, delivering another disincentive to trading and investment in digital assets.
- The decision to levy 30% tax on profits from digital asset transactions, including cryptocurrencies and non-fungible tokens, may rule out a blanket ban on such tokens for now but it will make trading in them less profitable, as per experts.
- “The announcement of tax at 30% on digital assets, coupled with the government launching its own digital currency, is an indication the government intends to discourage it and that only high-net-worth individuals (HNI) could make such investments and that the centre shall not permit cryptos as a currency,” said Sundara Rajan, Partner at DVS Advisors.
- The Finance Minister also proposed to introduce Digital currency or Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India (RBI) starting 2022-23. Introduction of Central Bank Digital Currency (CBDC) will give a big boost to digital economy, leading to a more efficient and cheaper currency management system, she said.
“What RBI will issue is a digital currency. Everything that prevails outside of it is assets being created by individuals & we are taxing profits made out of transactions of those assets, at 30%,” said FM Sitharaman in a press conference post Budget.