to invest or not to invest?- the Indian crypto dilemma.
With the announcement of Union Budget 2022, the proposed Section 115 BBH in Budget gave away a significant progressive and futuristic outlook of the government with respect to cryptocurrency in the country.
The focus on digital innovation while promoting Blockchain technology touched upon the key points that are supposedly meant to help the industry create sustainable growth. The first step in that direction came with classification of cryptocurrency as virtual digital assets. As per the Finance Bill which was tabled during the Budget, the term virtual digital assets includes both cryptocurrency and non-fungible tokens(NFTs).
Therefore, cryptocurrency would be taxable under the income tax act, 1961 in this scenario it needs the following criteria-
- It exists in the form of information or code.
- The generation of Digital asset of such nature has been through cryptographic means.
- It possesses some inherent value.
- Last but definitely not the least, it allows for transfer and storage of its units also known as tokens.
The government has empowered itself to identify classes of such digital assets from time to time with advancement in technology, with inclusion or exclusion pertaining to certain standards. It is seen as an asset class as well as an investment product.
The main question that arises is how does it impact a retail investor in crypto?
- Tax Deducted at Source will amount to 1% of the entire transaction amount.
- Any profits made from sale of cryptocurrency will be taxable at a flat rate of 30% w.e.f April 1, 2022.
- Loss incurred from digital asset holding can not be set off against any other income.
- The tax is on the basis of cumulative net gain on a transaction. For example, in case the profit from one cryptocurrency is ₹20000 and the loss is ₹6000, then the net taxable amount is ₹14000.
- The only deduction to be allowed is the cost of acquisition, with prohibition on setting-off losses.
- Certain specifications have been made for the Financial Year 2020–21:
Short term (36 months or less) tax:It will be dependent on income tax slab rate (which could probably range from 0% to 42.7%)
Long Term Capital Gains Tax (36 Months or more): 20% (availing the benefit of indexation)
Source- ClearTax
FUTURE OF CRYPTOCURRENCY IN INDIA
India has the potential to become a crypto superpower, as it is emerging as one of the hottest internet markets in the world, with almost 750,000,000 users, and millions waiting to join the Great Internet Factory.
Blockchain data platform Chainanalysis, published a report ranking India second behind only Vietnam in the list of countries seeing the speediest growth in the realms of cryptocurrency adoption. With no official estimates of the current cryptocurrency users in the Indian market, the unofficial number is more than 20 million crypto investors. This growth is highly fuelled by younger investors, who are mostly under the age of 35. Maximum investment is seen from tier 2 and tier 3 cities. With the opening up of newer and better cryptocurrency exchanges and NFT marketplaces, it won’t be wrong to say that the Indian market could be the gold mine, the Crypto Bros need.
However, with heavy taxation incidence, the investors will be discouraged. With the Governor of Reserve Bank of India, airing his doubts about functioning of cryptocurrency, and the government in conversation with the regulation of a Central Bank Digital Currency (CBDC) the current government strategy is still unclear.
THE GLOBAL DILEMMA
The donations to Ukraine in cryptocurrency have showcased the potential that these unregulated digital assets hold. With the ability to eschew bureaucratic red tape, crypto has safeguarded and funded the war from Ukraine’s side.
However, the counters in Russia, have alleged that legalization of cryptocurrency could save the country from the current dearth of funds and jumping the SWIFT ban that was imposed on the country.
Therefore, it has been clarified that cryptocurrency depends on the usage by the specific user in focus. With an untapped potential and still looking into the mainstream world, the journey to become acceptable around the globe, is still a long way to be walked upon.
It is time investors decide- if they wish to bear burn of taxes and make investments.
