Budget 2022 Introduces 30% Tax on Crypto and Digital Assets

Indian finance minister Nirmala Sitharaman announced a 30% tax on any income from the transfer of virtual digital assets on Tuesday, specifying that no deductions or exemptions will be allowed. This is believed to be the first step toward bringing cryptocurrencies and non-fungible tokens (NFTs) into the tax net. The government is also introducing a central bank digital currency, or popularly known as CBDCs, powered by blockchain technology in 2022-23.

“I propose that any income derived from the transfer of any virtual digital asset be taxed at a rate of 30%. Except for the cost of acquisition, no deduction in respect of any expenditure or allowance shall be allowed for computing such income “According to the Finance minister. She added that the scale and frequency of transactions in “virtual digital assets” have made it necessary to create a specific tax framework.

Finance Minister Nirmala Sitharaman said during her presentation of the national budget on Tuesday that the Reserve Bank of India (RBI) will create a digital currency in the next financial year using blockchain and other supporting technology. “Introducing a central bank digital currency will give the digital economy a tremendous boost,” as per her speech.

Losses on virtual digital assets trades cannot be mitigated by other sources of revenue. The tax will be borne by the recipient of bitcoins presented as gifts. All digital asset transactions will be subject to a 1 percent TDS (tax dedicated at source).

The words “cryptocurrency” and “crypto” were not mentioned in the budget speech. The finance minister, on the other hand, used the term “virtual digital asset,” which the sector takes to include cryptocurrencies and non-fungible tokens (NFTs). Although the designation and procedures taken do not clearly legalise cryptocurrency, the industry sees this as a move in the right direction.

The country looks to be waiting for global crypto regulatory agreement. Indian Prime Minister Narendra Modi called for global cooperation on cryptocurrencies earlier this year. Crypto problems, according to Modi, cannot be addressed by countries acting alone. Sitharaman told Parliament last year that “a new [cryptocurrencies] bill is in the works,” and that “the risk of cryptocurrency and it falling into the wrong hands is being monitored.”

“The most significant advance today was the clarification of crypto taxes.” This would provide much-needed recognition to India’s crypto sector. We also hope that this outcome clears the air for banks, allowing them to provide financial services to the crypto business. Overall, it’s excellent news for us, and we’ll need to read the entire version of the budget to grasp the finer points” said Nischal Shetty, the founder and CEO of Indian cryptocurrency exchange WazirX.

Sumit Gupta, co-founder and CEO of CoinDCX, said in a statement that the taxation decision gives the industry “much-needed confidence,” and that “taxation of virtual digital assets or crypto is a step in the right path.”

Other analysts, on the other hand, say that the 30% tax rate will merely increase the financial burden on cryptocurrency investors, who will have to pay a third of their profits in taxes. “This move would force people to move to traditional modes of investment such as stock, mutual funds, because they are not subject to as high as 30 per cent tax, ” Sharat Chandra, a crypto evangelist.

Industry estimates put the number of cryptocurrency investors in India at 15 million to 20 million, with total crypto holdings of approximately 40,000 crore ($5.29 billion).