India’s 30% crypto-tax proposal – Can’t tax something ‘illegal’… or can it?
Hours after the Indian government’s announcement to bring the transfer of digital assets into the 30% tax bracket, the industry seems to be divided on its implications.
Investor Rakesh Jhunjhunwala, for instance, known as the “Warren Buffett of India,” opined that Budget 2022 is the “death” of crypto in India.
Senior opposition leader Sachin Pilot was quick to take a jibe at the government’s decision too. He reportedly said,
“There’s no law on digital currency but there’s a tax against it now.”
While the policy proposal is turning political, some industry players also see the rate of taxation to be a bit extreme. Here, it is worth noting that a 30% tax is currently only levied on the highest income slab of over Rs 15 lakhs.
— Mr. Whale (@CryptoWhale) February 1, 2022
Tax and more tax?
What is worth noting is that the proposed new clause wrt virtual digital assets has a broader application. Now, all virtual assets ranging from private crypto to NFTs will attract a similar rate of tax. Simply because the definition of virtual assets includes any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise…
Meanwhile, Pratik Gauri, Co-founder & CEO of 5ire, also believes that “taxing income from digital assets at 30% may discourage some investors as prima facie it appears severe.” However, most industry players, including Gauri, have given a positive reaction to the above announcements as it also means the government’s stamp of approval for the asset class.
Even if it means a higher taxation rate for transfers in lieu of a capital gain tax, along with 1% TDS credit with no set-off provisions for losses or expenditure.
The document also specified that the loss shall not be allowed to be carried forward to subsequent assessment years.
But, does it mean private cryptos are legal in India?
As per Crypto Legal’s founder Purushottam Anand, taxing income from cryptocurrencies does not “necessarily and explicitly legalise cryptocurrencies.” Why? Well, this is because “income tax is not concerned about the manner or means of acquiring the income.”
According to Venus Dhuria, Co-founder of AppyHigh, for instance,
“Though 30% tax rate is on the higher side, and more clarity is required on the setting off of losses, this is still a start and hopefully with time, more clarity will emerge. Another benefit of recognising anything via regulation is that it prevents unscrupulous or illegal activities in the space.”
Contrary to his comments, CREBACO chief Sidharth Sogani feels that the lack of such provisions can encourage “illegal mining” in India.
This will encourage illegal mining in the country as well. India has a good potential of addressing the mining part of the global decentralised space which works on both POS and POW. This is ignored.
There are many gaps… @nsitharaman @jayantsinha @PMOIndia
— Sidharth Sogani (@sidharthsogani) February 1, 2022
Amendment to take effect from April next year
After the Budget speech, the FM was quick to clarify that currently, no tax plan for digital currency has been issued by the RBI. She stated,
“We’re not taxing currency that’s yet to be issued. Cryptocurrencies are not currencies. RBI is going to issue its digital currency, everything outside is assets created by individuals.”
What’s important here, however, is that the Budget Document stated that the taxation amendment will take effect from 1 April 2023. It will accordingly apply to the assessment year 2023-24 and subsequent assessment years.
But, GST issues around recent tax evasion claims remain unclear as per experts. Let’s recall that major cryptocurrency service providers were recently pulled up on suspicion of possible tax evasion. It included crypto-exchange WazirX which was alleged to have evaded a tax of 400 million rupees in goods and services tax (GST).
Despite the missing pieces of regulations, the industry hopes that the gaps will be filled by an ordinance in the coming months.
Even so, there remain some concerns. Big Bull Jhunjhunwala believes that India might be following the footsteps of China by announcing a centrally-backed digital currency.
He told CNBC,
“I think what government wants to do is that it wants the Reserve Bank of India (RBI) to promote digital currency and kill all other currencies, just like China is doing, which in a way is the right approach also.”
It is clear as day that this is a start. Whether it is the right kind of start in the right direction, however, is a matter for debate.