Indian Government Announces 30% Tax On All Digital Assets
The Indian government has announced a new 30% tax on all digital assets from April 2022. This includes cryptocurrencies, Bitcoin, NFTs, and Ethereum. The government has announced a new policy to combat money laundering and terrorist financing. However, it will also have a detrimental influence on the country’s developing fintech sector.
There are many clouds around the topic.
The Union finance minister, Nirmala Sitharaman, announced in her budget address on February 1, 2022, that any cryptocurrencies and other assets such as non-fungible tokens (NFTs) are expected to be taxed at a flat 30% rate, with 1% of tax deducted at source (TDS) when they are completed. The announcement is a significant shift in policy, with years when buying and selling cryptocurrencies like Bitcoin or Ether where it was outright prohibited, as well as a definition for how the government viewed them.
“There has been an incredible boost in virtual digital assets transactions. The volume and frequency of these activities have necessitated the development of a specific tax system”- Indian Union Finance Minister Nirmala Sitharaman
Taxation of Digital Assets: An Overview
While Digital Asset Tax won’t be imposed on digital currencies that are used as a medium of exchange, it will be imposed on any other digital currency that is not being accepted as a mode of payment. Digital Assets include Digital Tokens, Cryptocurrencies, and other assets which are designed to work as a medium for exchange and include Ethereum and other cryptocurrencies like Bitcoin and Ripple. The tax also applies to any businesses or individuals who buy cryptocurrencies by selling other digital assets. Digital Assets Tax will be imposed on gains from cryptos while dealing in them, however, it won’t be applied to any losses made while trading crypto.
India’s Digital Asset Tax system is similar to what many countries around the world are practising, which has helped these virtual currencies become a legitimate form of payment globally. Digital Asset Taxes have been announced in countries like Japan and South Korea, which are some of the biggest cryptocurrency markets globally. India had previously proposed Digital Assets regulations, making it compulsory for all Digital Assets transactions to be backed by KYC norms, but this is the first time that Digital Assets Tax has become part of India’s Union budget.
When does the new tax become effective?
On April 1, 2022, the new cryptocurrency or digital virtual asset tax will take effect. There are other provisions in the recently submitted Section 115 BBH of the Income-Tax Act that state losses cannot be offset against other income sources. In addition, all such transactions will be subject to a 1% tax deducted at source (TDS). Gifts of virtual digital assets will now be taxable in the recipient’s hands at a rate of 30%, according to the new law. There is no tax on giving to a close relative, such as your wife or children. However, gifts to individuals not covered by the term relatives will be taxed.
Set-offs are not permitted, what does this mean for crypto investors?
The exchange of virtual assets will not result in set-offs being permitted. This implies that crypto losses or profits cannot be changed with any other income or expenses accrued in the current year and that losses incurred in the next year cannot be carried over to it. Set-offs are frequently available in other assets.
The Digital Assets Tax will apply to all transactions carried out by individuals and businesses. The tax is also expected to be levied on platforms like cryptocurrency exchanges, which facilitate the exchange of cryptocurrencies for other cryptocurrencies or government-backed currencies like Rupees.
The coming of Digital Rupee, slated to be the first Central Bank Digital Currency (CBDC) project, will be governed by the government platforms of India. However, if you are uncertain what CBDCs are, CoinSwitch Kuber provides well clarification.
Such cryptocurrencies typically have the full trust and support of the authorized signatory. As a result, the Reserve Bank of India will continue to be the supporter of the Virtual Rupee, as it would be for the usual currency in circulation.
Ashish Singhal, CEO of the popular CoinSwitch Kuber, is the leading crypto marketplace platform, has applauded the commitment to creating a CBDC to speed up advancement.
Within the previous year, the administration has made great strides in terms of its attitude toward cryptocurrency. Several people are hoping that such a positive approach regarding digital currencies will continue to benefit cryptocurrency and its increasing application, such as decentralized applications, DeFi, and many others. This will certainly grow the interest of the people to invest in digital Indians cryptocurrencies which will be much more stable and unique as compared to other digital currencies.