On February 1, 2022, India made a major announcement regarding cryptocurrencies. While the government said it would accept digital assets, it said it would not be approved without tax regulation. Investors are at a complete loss. So how can this system become workable?
India’s economy minister Nirmala Sitharaman made two important cryptocurrency-related announcements while promoting the country’s budget for the coming year.
First, the government plans to introduce a 30 per cent tax on any income from cryptocurrency transactions and a second tax of 1 per cent at source on all transactions (TDS).
Second, India plans to introduce the digital rupee (central bank digital currency or CBDC) within a year, which is certainly the first benchmark.
The biggest confusion for users after their announcement is that cryptocurrency can be taxed and is not yet legal. The government has absolutely not assumed that cryptocurrency is legal, and continues to avoid it until now.
In other words, it looks like the bill will take time to legalise digital assets. The government has taken a clear stance on the issue, and it certainly doesn’t want to clarify it before taxing people.
Whether cryptocurrency is legal, how much tax citizens have to pay, whether cryptocurrency can be banned and how immutable tokens (NFTs) will fit into India’s regulatory framework are just some of the questions that crypto-savvy citizens want answered.
Will crypto-assets be legal?
When India announced the proposed new regulations, the world’s largest cryptocurrency exchange Binance tweeted that “cryptocurrency has become legal in India.
” It is not illegal to buy and sell cryptocurrency in India,” Finance Minister Somanathan told Bloomberg.
“Bitcoin, Etherium or NFT will never be legal tender. Crypto assets are assets whose price can be set between two people. You can buy gold, diamonds or cryptocurrency, but they have no value.”
Minister Tarun Bajaj, on the other hand, was the one who explained the issue most clearly to cryptocurrency enthusiasts, stating in an interview that cryptocurrency income is always taxable, but the new rule will “provide certainty about the taxation of cryptocurrencies”.
However, head of taxation J.B. Mohapatra said that when this new rule, a bill, was tabled in Parliament, “recent developments mean nothing with regard to the legality of cryptocurrencies”. Mohapatra also said that the act of collecting taxes should not be equated with giving legitimacy to cryptocurrencies.
How much tax will investors pay?
Crypto investors will pay 30% tax on all transactions. In addition, under certain circumstances, some investors may face an additional tax liability of 1%. The 30% tax will apply whenever any investor makes a profit. In contrast, the 1% tax will only apply in certain situations.
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However, international transactions may be exempt from the tax as the Indian government has said that it is yet to determine how taxes will apply if a buyer makes overseas transactions.
If a cryptocurrency investor sends Rs 100 crore to an exchange and buys bitcoin with it and its value doubles, the investor wins Rs 100 crore. As per the announced tax rules, the investor will be charged 30% of the Rs 100 profit. Thus, the investor will be left with Rs 170 lakhs, besides, 1% TDS tax will be applied to the sale value (i.e. Rs 200 lakhs in this case) at the time of sale.
However, whether withholding tax will be levied depends on the amount investors trade on the exchanges and who they are. are taxed at a TDS rate of 1% if they invest more than Rs 10,000. Investors with less than 10,000 will not pay this tax. Individuals will pay 1% TDS tax for every transaction above Rs 50,000.
Apart from converting their cryptocurrencies into rupees in their bank accounts, investors will also pay a 30% tax if they make any transactions with their cryptocurrency investments.Exchanges will have to submit their TDS taxes to the government on a monthly basis. The 30% tax will be the responsibility of individuals.
The government has yet to determine how the 1% tax will be applied when the buyer or seller of a cryptocurrency transaction is in another country. All cryptocurrency income will be taxed from April 1, 2023, while the 1% TDS tax will take effect from July 1.
Anush Bhasin, founder of Quagmire Consulting, said the fixed 30 per cent tax is ” unfair ” especially for low-income investors. Bhasin said the 1 per cent TDS tax would be difficult for retail transactions.
” The government should have a clearer idea of how transactions will be assessed,” Bhasin said. The government treats cryptocurrency like any other type of speculative income in India, which explains why it is taxed at 30%. It is also worth noting that this rate is the highest in India