The crypto community has reacted positively to Finance Minister Nirmala Sitharaman’s statement in the Budget that cryptocurrency will be taxed at a fixed rate of 30%, with a 1% tax withheld at source on payments made on digital asset transfers.
While this has improved the industry’s morale, many crypto aficionados are wondering if the Finance Minister has simply legalised cryptocurrency. Under the Finance Bill, the government did not make crypto legal, but it did make the gains from it taxable.
Furthermore, it is quite improbable that the government will collect taxes on cryptocurrency transactions before introducing legislation to make cryptocurrencies illegal. According to industry watchers, the government’s introduction of income tax on digital assets, which includes cryptocurrencies and Non-Fungible Tokens (NFTs), is anticipated to prompt a sell-off among Indian investors.
The finance minister announced a 30% income tax on digital currency returns on Tuesday. This would mean that investors would have to pay a 30% tax on any profits from trading or investing in cryptocurrencies.
According to experts, the 30% tax would not be able to be offset against any other losses or expenses. This will simply increase the tax burden on cryptocurrency investors, who will be required to pay a third of their profits in taxes. The government has also closed loopholes by stating that if crypto assets are “given” by anyone, they would be subject to income tax.
The recipient of such a gift will be subject to a 30% tax. From this year forward, the government had also sought advice from prominent tax advisors on whether money received from trading or investing in cryptocurrencies may be classified as business income rather than capital gains.
This is expected to have an influence on “air dropped” crypto assets, which are cryptocurrencies that are given to investors for free or at a reduced price when they are first released.
There was no clarification on the tax rate on cryptocurrencies before recently. This is due to a lack of clarity over whether crypto assets are currency, commodities, or services.
Many investors wanted to treat crypto assets as if they were stocks, with long-term capital gains tax applied.
The law includes a definition of “virtual digital asset” that is wide enough to include NFT, assets in metaverse, digital currencies, tokens, and other emergent digital assets.
According to tax specialists, investors might sell their crypto assets before April 1 this year and benefit from lower taxes as a result of the finance bill. The increased tax rate will not take effect until the following fiscal year, and investors can still deduct income from other business losses or apply long-term capital gains tax.