India has now implemented a cryptocurrency tax regime. The government took a conservative stance on taxation in Budget 2022–22, establishing a flat 30% tax on revenue from digital virtual assets, or crypto. Finance Minister Nirmala Sitharaman stated in her Budget Speech 2022 that income from the transfer of virtual digital assets would be taxed at 30%. She also stated that no set-off would be permitted in the event of a loss. Every cryptocurrency transaction will be subject to a 1% tax deduction at the point of sale. She went on to say that, while the Reserve Bank of India’s digital currency will be the only one recognised, any profit gained from investments in any type of virtual asset will be universally taxed at 30%. She also stated that the government and the RBI do not consider cryptocurrencies a currency.
During her Budget Speech, Sitharaman also stated that there would be no deduction for any expenses incurred in such transactions other than those associated with acquiring such assets. Any loss suffered due to such transactions cannot be offset against the taxpayer’s other income. Furthermore, any payment of proceeds to a taxpayer from the sale of digital assets exceeding Rs. 50,000 in a calendar year will be subject to 1% TDS. The recipient will be taxed if they receive such digital assets as a gift.
The overall scheme seems to be designed to reduce ambiguities while also discouraging consumers from investing in cryptocurrencies. Furthermore, the Finance Minister mentioned that the RBI would issue a blockchain-based RBI-backed digital currency (Central Bank Digital Currency (CBDC)-digital rupee) beginning in 2022–23 to promote an efficient and less expensive currency management system.
The unique tax system for Virtual Digital Assets (VDA) removes the legal fog surrounding the legitimacy of cryptocurrencies in India and will boost sector innovation and growth. Moreover, given the underpinning creativity and technology involved in cryptocurrencies, a tax rate of 30% that classifies cryptocurrencies in the same group as puzzles and lotteries is both narrow and discriminatory. As tax will be levied on the revenue generated by the “transfer” of VDAs, it is critical to understand how this term is defined under the Finance Act.

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-Adv. Sabrina Bath

(Content Writer, WCSF)

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