After years of uncertainty, India took its first real step towards adopting cryptocurrencies.
The Reserve Bank of India will launch its digital currency in the upcoming financial year, Finance Minister Nirmala Sitharaman said in her budget speech on Tuesday.
Asia’s third-largest economy also unveiled plans to tax the income from the transfer of virtual assets at 30%, effectively wiping away concerns tied to any ban on such transactions.
The move pushed up Bitcoin on Tuesday and cheered denizens of the sector.
"It gives relief to a lot of investors that the government is recognising the crypto asset ecosystem and has taken efforts to give clarity on its taxation. This legitimises the crypto asset in the country and paves way for a formal umbrella of regulations going forward," said Vikram Subburaj, CEO, Giottus Crypto Exchange.
Others such as Wazir X CEO Nischal Shetty hoped that banks too will now be on board and support the exchange of cryptocurrency, adding that if RBI's virtual currency was based on blockchain, it could be traded on crypto exchanges that run on the technology.
Shetty sees the RBI's new virtual currency, which will be launched in the upcoming financial year, competing with USDT (The dollar-linked stable coin tether) and other stable coins and not other forms which are unstable.
"Digital Rupee is a stable coin and other stable coins will see competition. However, non-stable crypto that is used for different use cases as an asset or utility does not compete with a central bank digital currency", he added.
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While the Budget proposed to levy capital gains tax on transfer of any such digital assets at a whopping 30%, it did not talk about the benefit of any expense deduction or setting off any losses against such gains, Bengaluru-based chartered accountant B E Kumar Prasad explained.
"Cryptocurrencies or digital assets were taxed either as business income or capital gains based on the nature and frequency of transactions at the applicable tax rates. Through this budget, a definite classification of taxes is provided for the sale of crypto assets. Proceeds from the sale of digital assets will attract 30% taxes, with no deductions, except the cost of acquisition,” Prasad said.
Further, the service provider will have to deduct TDS at 1%, he explained. For example, if the cryptos are sold for Rs.1000 and its purchase price is Rs.400, on the gain of Rs.600, a tax of 30% is applicable, Prasad said.
Non-fungible tokens (NFTs) – which refer to digit assets that exist on a blockchain, a record of transactions kept on networked computers – will also be taxed at 30% as per the Budget announcement.
"NFT owners in the country are moderate in comparison to the 15+ mil. investors in crypto assets. In one sense, it is good that NFTs can't be construed as a way to avoid tax", Subburaj said.
Others such as SR Patnaik, Partner & Head of Taxation at Cyril Amarchand Mangaldas, said that such people who get such assets as gifts would be taxed.
"This is expected to cover cryptocurrencies as well as other virtual digital assets like nun-fungible tokens. While the term cryptocurrency has not been mentioned explicitly, it is evident that the target has been cryptocurrencies because of the manner in which the term virtual digital asset has been defined", said Patnaik.
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