After the announcement by the finance minister of a 30% tax on income from cryptos, and other virtual assets, mixed emotions are being expressed in the crypto industry. Moneycontrol hosted a panel discussion where experts supported the move, but also raised concerns about the industry’s impact
Many believe that a clear tax system is an important step in recognizing cryptos as legitimate assets by the government after years of speculation. A 30 percent tax rate would discourage new investors from investing in an asset that is still being accepted by governments around the world.
Cryptos are also taxed at the same rate as gains from speculative activity such as gambling, lotteries, etc. This puts digital assets in the highest tax bracket.
Ashish Singhal is the founder and CEO at CoinSwitch, one of India’s most valuable crypto exchanges. He believes this is a good start, but hopes that the government will reconsider the tax rate. There is no doubt that the government wants to discourage people from trading, but they still want to see how the industry develops. Singhal stated that there may be amendments as the government realizes how lowering the tax bracket could increase revenues and encourage more investors to invest.
Quagmire Consulting founder Anoush Bhasin shared a similar opinion. “Normally it (high tax rate), is done for industries such as betting. The Government wants to discourage people from entering this space. Incidental deductions will not be allowed, which is unjust. He said that we can be sure to see a better tax bill in the future through amendments and recommendations.”
The definition of a new asset type is seen as a significant move. Ramesh Kailasam is the CEO of IndiaTech.org, which represents investors and startups. The tax recognizes the crypto industry but signals to other stakeholders, including the RBI and GST department, to adjust their regulations to include the newly recognized asset class.
Kailasam said, “But, it is still necessary to look for more clarity about the cost of acquisition because the memorandum states that tax is charged on the amount spent on purchasing the asset. The buyer may also have to pay gas and translation fees on the platform. These are additional clarifications industry stakeholders need to ask.
There is still uncertainty about the future bill regarding cryptocurrencies. Network18’s Finance Minister Nirmala Sitharaman stated that discussions are ongoing with different stakeholders, and that clarity is still being sought about the bill.
Sathvik Vishwanathan CEO and founder of Unocoin crypto exchange, says the government has found a middle way for now.
They don’t want this to be encouraged, but they want people to see it as an asset-based activity that allows them to invest with the expectation of increasing in value. Vishwanathan stated that this was a creative solution.
The number of Indian crypto investors has risen to more than 15 million in the last year. This ecosystem has attracted large investments. CoinDCX, CoinSwitch, and CoinSwitch, are two unicorns that have attained a minimum of $1 billion valuation.
Is the current funding boom set to slow down due to the high tax structure that could discourage new investors from the space? Venture capital firm Antler India partner Nitin Sharma sees a short-term effect.
“In the short-term, the asset side (cryptotrading) could have a negative effect from the funding perspective. Sharma stated that overall, the regulatory risk is much lower and foreign capital flow will continue.
Sharma also expects that Web3 India will see more startups if there is more legal and regulatory clarity.
The budget stated that the trades and transfers will be subject to a 1 percent tax deducted at source (TDS). Experts view the low TDS as an incentive to track all transactions. This indicates the need to increase compliance and require KYC for all investors.
According to CoinSwitch’s Singhal, “I don’t see any major changes from a compliance perspective.” “People will no longer be able trade if they don’t have a PAN card. He explained that KYC has been made mandatory and TDS is being applied.
Darshan Bathija is the co-founder and CEO at crypto platform Vauld. The TDS charge will increase volatility, and eliminate liquidity from the market. He stated that it will prevent market makers from making India markets. This would reduce liquidity and make block trade executions more difficult.