The Indian crypto industry is seeking a revision to the tax rate proposed by the 2022 Union Budget. It was a 30% tax on the sale and purchase of virtual assets such as cryptocurrencies.
The Blockchain and Crypto Assets Council (BACC) will draft a memorandum in this regard. It will consider the implications of new tax rules and how they will affect the crypto ecosystem.
In order to establish a record trail, the Budget mandated that an additional 1 percent TDS be levied on crypto transaction exceeding a specified limit.
Although such a digital gift is taxable, losses incurred during the transaction will not be eligible to be written off against other sources of income. Other than deductions for acquisition costs, there would be no other allowance.
TV Somanathan, Finance Secretary, had previously mentioned that cryptos are currently legal, taxable and unregulated in India. He said that taxing virtual assets should not be seen as an endorsement by the government on crypto as a solid asset class.
Somanathan observed that only the tax system has changed while crypto income’s positive taxability status has remained the same. The Income Tax Act does NOT exempt income from other than agri-income. Before this law, income from cryptocurrency was taxable. It is now taxable and will continue to be after April 1. The taxation system is changing. He said that it is taxable even before April 1, but not at 30%.”
The industry is preparing for a review before the ministry, given the timeframes. Experts welcomed the taxation change, which was supported by the likes Ashish Singhal is the founder and CEO of CoinSwitch and co-chair Blockchain and Crypto Assets Council. He highlighted the “business-friendly” approach to the Budget and the need to have industry-government collaboration in order “to bring crypto-asset taxes at par with other asset types and take part in the central government’s vision for economic growth.”
Many were also disappointed by the high tax rates. Harsh Bhuta (Partner, Bhuta Shah and Co LLP) stated that while the Budget provided much-needed clarity about cryptocurrency taxation, it came at a “high cost”.
Bhuta stated that a tax rate of 30% on digital asset transfers, without deductions (other than for the cost of purchase), and without any set-off or carry forward of losses will disappoint most investors.
A petition calling for the revision of new tax rules was also created online by Aditya Singh, Crypto India co-founder. Nischal Shetty (Founder, WazirX) also supported the petition.
Cashaa’s founder and CEO, Kumar Gaurav, observed that the current tax was “a little on the higher side”.
The industry calls for a flexible tax system that treats it as a class with other asset classes, rather than a single tax rate.
When deciding on taxes, it is important to consider the income of crypto investors. Crypto as an asset class has been embraced by Indians in Tier-2 and Tier-3 cities. This indicates that crypto has not only attracted the wealthy but also as an investment option.
WazirX, for instance, reported a 2,375% increase in signups from Tier-2 and Tier-3 cities in 2021. CoinDCX reported an increase in crypto adoption in cities such as Indore, Lucknow and Patna. This is in comparison to larger metropolitan areas. The current rulings make crypto transactions subject to the same strict measures as social evils such as gambling and betting, which could potentially lower crypto’s creditworthiness.