Giving clarity on taxation of cryptocurrencies and other digital assets, Finance Minister Nirmala Sitharaman on Tuesday proposed a 30 per cent tax on income from transactions in such assets.
Digital currency and assets have gained traction globally over the last couple of years. However, India did not have a clear policy on either regulating or taxing such asset classes.
What are these digital assets?
Digital assets include cryptocurrencies, DeFi (decentralised finance) and non-fungible tokens (NFTs). A cryptocurrency is virtual or digital currency that takes the form of tokens or coins.
These virtual assets don’t include digital gold, central bank digital currency (CBDC) or other traditional digital assets.
The Finance Bill explains digital assets as, “any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically; a non-fungible token or any other token of similar nature, by whatever name called; any other digital asset, as the Central Government may, by notification in the Official Gazette specify.”
How will it affect crypto investors?
The decision to tax digital assets came as a major setback for the existing crypto investors in the next financial year and might discourage investments in cryptocurrencies.
"No Crypto bill but taxation at 30 per cent of virtual asset transfer gains and an additional 1 per cent tax collection at the time of transfer means that party seems to be over for crypto-assets and exchanges," former Union Finance Secretary Subhash Chandra Garg, a key figure behind drafting the original crypto bill, told IANS.
Notably, as per industry estimates, there are 15 million to 20 million cryptocurrency investors in India, with total crypto holdings of around Rs 40,000 crore.
Asset holders welcome proposal
In the hope to have cryptocurrency legitimised in India, the crypto ecosystem has welcomed this proposal of the finance minister. "India is finally on the path to legitimising the crypto sector in India," Nischal Shetty, founder and chief executive of crypto exchange WazirX, told PTI.
Sumit Gupta, co-founder and chief executive of crypto exchange CoinDCX, termed the Budget as "forward-looking and inspirational."
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