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Crypto World And Regulations By The Indian Government
Written by Gagandeep Arora - Date - 15th April 2022
The Crypto world crept into Indian households silently but very effectively. Its non-recognition for a very long time by the government did hamper its progress in our society but not anymore. Taxation of cryptocurrency worked as a ray of hope for many crypto enthusiasts, that the recognition of Cryptocurrency will lead to its legalisation very soon.
Finance minister Nirmala Sitharaman, while announcing the budget for 2022 stated 30 % tax would be charged on income from the transfer of virtual digital assets. One may say that taxation of virtual digital assets does not necessarily mean that it will be legally recognised but it surely means that no longer can it be ignored. As stated by our finance minister, the scale of these transactions is so high that it needs to have a specific tax regime. Still being a new baby in town, new investors and even old-timers need to understand firstly the meaning of cryptocurrency and its scope of taxation before investing their precious time and money in it.
What Is Cryptocurrency?
Cryptocurrency is defined under virtual digital assets. As stated by the Central Government any virtual digital asset is defined as
(a) Any information, number or code generated cryptographically provides a digital representation of value exchanged with a promise of representation of value exchanged along with the inherent value or functions as a store of value in any financial transaction or investment but can be stored, transferred or traded electronically.
(b)non-fungible token or any other token of similar nature Any other digital asset as given by the Central Government in any notification.
The virtual digital asset includes not only cryptocurrency but also other digital assets. But the definition has been made exhaustive by the use of the words like code, number and information.
The government has been in the process of passing the bill “The Crypto Currency And Regulation Of Official Digital Currency Bill” but it has not been passed till now as still RBI needs to give its technical inputs regarding the same. Nevertheless, guidelines for taxation on Cryptocurrency have been given in the Budget 2022.
1. Accordingly, any income arising from the transfer of virtual digital assets will be taxable at the rate of 30% with no setoffs allowed as deductions except the cost of acquisition, being the only allowable deduction.
2.The loss on the sale of digital assets cannot be set off against any other income nor allowed to be carried forward to subsequent tax years. For regulation and capture the details of all the transactions TDS @ 1% will be deducted on the payment of sale consideration of virtual digital assets, for a sale consideration of such assets cumulatively exceeds Rs.10,000 in any financial year. The threshold limit for TDS is
3.The Income-tax Forms will have a separate column from 1 April 2022.
Virtual digital assets are a part of the immovable assets under the Income Tax Act Sec 56(2) (x). Although there are no laws that prohibit the trading, buying or selling of cryptocurrency such high taxation rules seem to have discouraged the investors from trading in the virtual digital assets as can be seen if we study the goggle trends of the past three months Most of the searches include ‘ taxation on Cryptocurrency’ and ‘TDS on crypto ‘.
Conclusion-Is High taxation a Good Move?
The experts have been lobbying for a long time for regulation in Crypto trading. Most investors get discouraged due to the ambiguity caused in the world as there is a lack of regulation. Even now the government stands by stating that it does not have complete knowledge of the data on these platforms. The nature of these transactions does not provide complete transparency to the government regarding the flow of transactions in and out of the country. According to the high taxation policies investors have to think twice before investing in it as now the government is taking a good chunk in the profits but in case of loss, it is all yours.
