Article by Sneha Singh
After years of hesitation, India is on its way to keeping up with the global shift towards digital currency. The government plans to launch its virtual currency starting from April 1, as Finance Minister Nirmala Sitharaman disclosed on Tuesday while presenting the Union budget 2022. Moving ahead, this class of assets will be incubated under the Reserve Bank of India (RBI).
Nirmala Sitharaman, Finance Minister
There’s been a phenomenal increase in transactions in virtual digital assets.
India joins the revolution of deploying new technologies into the financial framework and making money more efficient. Moreover, RBI has been brainstorming for a phased execution strategy, which would help the country not depend on cash as preferred mode of payment. The finance minister added that takeoff of a digital rupee would bring in opportunities for efficient and cheaper currency management.
However, the greetings come with a load of 30% tax. The government adds a twist to the law by imposing a 30% tax on income generated from digital assets.
The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.Nirmala Sitharaman, Finance Minister
In other words, Indian lawmakers will not show any mercy on the tax except the acquisition price and no loss in trade will be permitted to be dragged ahead.
“Interestingly, the rate of tax is proposed to be 30% similar to what one would have paid on short-term capital gains.”Keyur Shah, Tax Leader-Financial Services, EY to The Economic Times
Response from the Opposition and Industry
The industry as a whole celebrated the cryptocurrency law. However, some prominent crypto assets’ representatives conveyed disappointment as they believed it would hurt the strategies of active traders in India.
Budget 2022 is the death of Cryptocurrency in IndiaRakesh Jhunjhunwala to CNBC
A senior crypto professional also contemplates that this will burden traders to switch to foreign cryptocurrency exchanges that don’t abide by the rules of India.
The opposition on the other hand used this as an opportunity to take on the centre, former Finance Minister P Chidambaram said the development signifies undermining of RBI’s monetary policy as only the central bank can issue currency.
However, better clarity must emerge, perhaps through handouts, about taxation for one trading in crypto as stock in trade or exchange.
There also needs to be a clarity around the cost of acquisition as there may be platform commissions, gas fees, and so on that may go into the cost of purchase.Ramesh Kailasam, IndiaTech to The Economic Times
Indian apprehension around Cryptocurrency
Just last year Prime Minister Narendra Modi quipped, “Crypto can spoil youth,”. While crypto is more influential than the ordinary financial currency, it is still vulnerable to significant threats. In recent times, many countries like China, Europe, Russia, etc., have been mulling to lessen or ban private virtual assets due to increasing cyber-attacks and subsequent financial losses.
On the other hand, India is opting to make a solid foothold to avoid the chance of any cyber threats. While imposing a 30% tax is debatable, it still leaves an opportunity for the country to develop further clarifications while evolving above all current fears.