Budget 2022: 30% tax on cryptocurrency income brings clarity, legitimises crypto, say experts

Finance Minister Nirmala Sitharaman said that any income from transfer of any virtual digital asset shall be taxed at 30%.

New Delhi: Finance Minister Nirmala Sitharaman, on Tuesday (February 1) announced that investors’ will have to pay a 30% tax will on income earned by making investments in cryptocurrency.

“Cryptocurrencies will be taxed at 30%. Any income from the transfer of any virtual digital asset shall be taxed at 30%. No deductions and exemptions are allowed. Loss from the transfer of such assets cannot be set off against any other income,” Finance Minister Sitharaman said while presenting the Union Budget 2022.

Industry players and experts are hoping that the introduction of a 30% tax on crypto income will clear the roadmap for the crypto industry. 

“Government has brought in 30% tax on cryptos income, where no deduction for any expenses except the cost of acquisition shall be allowed. The gift of virtual assets shall also be taxed for the recipient. This clears the air on taxes for cryptos, however, there are several types of incomes people earn from cryptos and hopefully, more clarity will be available in the Budget documents,” said Archit Gupta, Founder and CEO of Clear.  

Purushottam Anand, Founder, Crypto Legal said, "The Government has proposed a specific tax regime for Virtual Digital Assets (VDA) proposing to tax income from transfer of any VDA at 30%. This clears the regulatory cloud around legality of cryptocurrencies in India and will support innovation and growth of the industry. The budget has also cleared the way for the RBI to expedite and India’s own digital currency,"

"However, tax rate of 30% which places cryptocurrencies in the same category as lotteries and puzzles is certainly short-sighted and regressive considering the underlying innovation and technology involved in cryptocurrencies. Since tax is to be levied on the income from ‘transfer’ of the VDAs, it will also be important to note how ‘transfer’ is defined in the Finance Act.," he added. 

Anand said that not allowing deduction in respect of any expenditure will increase the effective tax burden. It is also pertinent to note that the Budget also proposes that any loss from transfer of VDAs cannot be set-off against any other income. "This in essence isolates virtual digital assets from other classes of assets and will increase the effective tax burden for investors. Introducing provision of 1% TDS is on expected lines and will help in tracking of transaction details and increase revenue collection," he added. 

Avinash Shekhar, CEO, ZebPay, said, “Tax has always been applicable to gains on virtual digital currencies, but the ecosystem did not have clarity on it. The move to tax virtual digital assets gives the entire ecosystem including investors and exchanges transparency on the road ahead. 30% tax on income from virtual digital assets, while high, is a positive step as it legitimizes crypto and hints at an optimistic sentiment towards further acceptance of crypto and NFTs across stakeholders in the country. The government has come a long way in its stance towards crypto from last Feb to today and we are confident that this will herald a new era of growth and innovation for India in a Web 3.0 world.”

He added that the announcement on the launch of a Digital Rupee using blockchain issued by the RBI will familiarise Indians with the benefits and efficiency of virtual currency, building an appetite for the crypto, blockchain and the multitudes of innovations and employment opportunities that these technologies are capable of fostering. Also Read: Union Budget 2022: Top 5 announcements on customs reforms and duty rate changes

“The Budget focused heavily on integrating technology across sectors, and the gradual acceptance of a digital currency, blockchain and virtual digital assets has the potential to make India a leader in this new paradigm of blockchain-enabled revolution,” Shekhar added. Also Read: Budget 2022: PLI scheme can create 60 lakh jobs in next 5 years, says FM Sitharaman

Anshul Dhir- COO & Cofounder, EasyFi network, said, "India is huge market and by having set definition of crypto assets as digital assets is a welcoming development in my opinion. This is first step towards legitmizing digital asset market & allowing indian talent to compete with global counterparts. Higher taxation can be counter productive in long run but i am hopeful GOI has taken a temporary measure here to contain unorganised trade & transfer of cryptocurrency."

 Roy Chowdhury, Partner, J. Sagar Associates (JSA) said, "Industry stakeholders will certainly appreciate the introduction of a centralized digital currency by the government as it promotes a reliable and alternate payment tender. That being said, the proposed digital rupee and its pricing will be entirely regulated and controlled by the government. Apart from the ‘digital rupee’, the government is not keen to recognize the availability of any other kind of digital currency in India. As a result, free market players will not be permitted to operate or use cryptocurrencies other than the digital currency issued by RBI. This will prevent market players from entering into several digital transactions that require such other kinds of cryptocurrencies. Hence, the only way to bridge this gap would be if the government came up with a set of regulations to govern all kinds of digital currencies in use in India, instead of a sole government controlled currency."

Gautam Kathuria, Senior Research Associate, The Dialogue, said, "The income from transfer of any virtual digital assets to be taxed at 30%, with an added 1% TDS on transaction. With this move, the government is aiming to reduce the number of casual investors engaging in the market for crypto and other virtual assets. The taxation on income from these assets is a fairly high percentage, and is matching the tax bracket imposed on forms of speculative income such as gambling and prize money. Losses from these transactions also cannot be offset against other sources of income from different financial instruments."

"Having said that, on the whole it is a positive move  since it highlights the government’s intentions to regulate, not ban crypto and other digital assets. Signs point towards these assets being viewed as a store of value and not a legal currency. These assets are now formally recognised by the government, and will steadily be integrated within our national financial framework," he added.