crypto's taxing journey to legitimacy
if you recently bought some Bitcoin or Ether or any other ‘virtual digital asset’ then be ready to pay the government its share.
in the Union Budget speech, Finance Minister Nirmala Sitharaman announced a 30% tax on any income from the transfer of these digital assets.
while India’s crypto ecosystem still awaits formal regulations, the commentary on the taxation of these crypto tokens brings about a certain legitimacy to the space. industry experts view this as a positive first step towards a more accommodative regime.
the Budget also proposed certain other provisions around these digital assets.
the government has made it clear in the past they are not enthused about the prospects of using crypto tokens for payments and these additional provisions seem to be geared in that direction.
it was also notified that the Reserve Bank of India will introduce a digital rupee starting from the financial year 2022-23 and that it would be ‘regarded as banknotes.’
now, this brings to what has changed for India's crypto ecosystem post this budget.
apart from the clarity on taxation, it’s worth noting that the government has sort of redefined crypto assets from the earlier definition of ‘private cryptocurrencies’ as cited in the 2019 Garg Committee recommendations report. it essentially considered any and every crypto token not issued by the sovereign as a ‘private cryptocurrency’ and had suggested criminalizing dealing in them in any shape or form.
the new definition has more nuance. the earlier term has been replaced with ‘virtual digital asset’ which is defined as “any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise….”
the definition includes non-fungible tokens and any digital asset which may be later notified by the Central Government.
the Budget, however, made no mention of decentralized finance or Defi and how it will tax income from various activities such as lending or staking on such Defi protocols. a report from blockchain analysis firm Chainalysis had ranked India sixth globally in their Defi adoption index.
more clarity is required, but since the income generated from Defi can be seen as a crypto-related activity, it is speculated at the moment to fall under the 30% rate.
also, earlier tax experts would suggest declaring income from crypto as capital gain or income from a business, depending on whether you were an investor or a trader. but under the new 30% rate, income from crypto gains won’t be considered as a capital gain. the Finance Bill classifies virtual digital assets as ‘property’ and a separate sub-section will be created to tax these instruments from 2023. finally, the income will also not attract a concessional tax rate.