Digital Currency Crypto Tax
30% tax on cryptocurrencies! Why are people happy about this move? This is a massive step towards making crypto legal. India may become a world leader in block chain. This new technology may take closer to $5 trillion goal.
History of Crypto in India
Indians fell in love with cryptocurrency. In fact, these virtual assets in India are currently estimated at around Rs45000 crore with about 15 million investors. And, the country wanted government to recognize this, and the companies also urged government to regulate, not ban cryptocurrency in India.
In 2018, RBI banned regulated entities from dealing in Virtual Currencies. Then, in 2020, Supreme Court quashed RBI ban on Crypto and the market increased. Until 2021, Crypto currency was making headlines over the world, and Crypto Unicorn Company emerged by that year. But, in November, 2021, sources reported a bill related to crypto citing jail term of 1.5 year for possession; it did rounds on social media and led to backlash and crash.
Cut to 2022, 30% taxes have been imposed on crypto assets, as announced in the budget this year. Even though the government has imposed tax, yet people are celebrating because it is an indirect recognition of the virtual currency. In other words, acche din for such virtual assets are here to come; the future seems bright in India. It’s almost similar to an official permission indicating that crypto won’t be banned overnight anymore, and only the little details remain to be filled. This is, however, the first step and many more are awaited.
Is Crypto ‘Legal Tender’?
Even after this budget announcement regarding crypto currency, the government is still reluctant to admit or reveal its official position. In post budget press conference, FM Nirmala Sitharaman said that consultation is still underway on the crypto regulation and what is legal – it will only be cleared once the regulatory document is finalised. The crypto bill might also be tabled. Remember that the government has the right to decide which digital assets will be taxed, which are legal and which aren’t. Conditions will be set.
Finance Secretary of India, T.V. Somanathan said that cryptocurrency will never be legal tender. He said that RBI’s own digital currency will be legal, and others will not be legal tender. The Finance Secretary further said, “Bitcoin, Ethereum or NRT will never become legal tender.”
But, interestingly, virtual currency exchanges and enthusiasts have never demanded legal tender either. There are a lot of steps left for crypto to be matured; it’s a long road to tread on. The investors merely want it to be recognised as an asset, store of value. El Salvador is the only country where cryptocurrency is legal tender. But that experiment is in the works.
May be in a few decades, it will be legal tender in India, but at least in the beginning it should be recognised as store of value. Store of value is a value which is determined by market forces or people. Examples: Gold, diamond, crypto etc. – the values are decided by the market. Government doesn’t authorise values for these assets. They are market driven. Due to this, the government is saying that they have no authorization or responsibility and the government banks aren’t backing crypto currency. There is no such guarantee that your investments will be successful and the government isn’t responsible for this – what the finance minister firmly said.
Besides, cryptocurrency is authenticated by blockchain, hence it would anyway be fruitful if government doesn’t take responsibility or interfere with its process. Those who were worried about crypto legality, Finance Secretary’s stance is good news, but still no legal tender.
In a nutshell, two options were available: complete ban on crypto leading to underground (VPN) investing OR to tax it. The government very wisely chose the second.
Logic of “a crypto tax”
- Flat 30% tax is imposed irrespective of tax slab. Government says it’s a speculative investment. At some point, once these vitual assets mature, government will have to look at it as capital gains tax and not as speculative. May be in future, tax slab will be eased. As of now, it is flat 30%. So, if your salary is not taxable, but you’ve invested in crypto, then 30% tax is mandatory for you.
- There is no offset against losses which is allowed in normal investment.
- 1% TDS – all exchanges will report transactions to government. It can be said that it’s another system of tracking, but it legitimizes your investment.
- Gift through virtual assets will too be taxed at 30%.
Finer details will be clarified in the bill as said by the finance minister. But at least, police now will not come knocking at your door if you were/are/will be investing in crypto. But, it must be noted that due to 30% tax, people may avert tax report. So, the government should ensure tax isn’t high.
Advent of the digital rupee
The government says that deposit and withdrawal will not be required for digital rupee. Transactions will be seamless – it will be the same as making payments through the digital wallets like Paytm, UPI etc. Meaning, digital currency can be used like UPI.
Nirmala Sitharaman even mentioned in her budget speech that India will take the route of Central Bank Digital Currency (CBDC), and that it will boost digital economy. “Digital currency will also lead to a more efficient and cheaper currency management system,” she said. It will be issued by RBI in 2022-2023.
Interestingly, China, Sweden, Russia are all trying to achieve the same goal of Central Bank digital transaction, but it isn’t easy for India to achieve. After the demonetisation and halt of recurring payment, introducing digital rupee is a major step for RBI to introduce.
Questions may arise – Why do we need digital currency? Aren’t we paying digitally via UPI, Phonepe etc.? But, it must be known that these digital wallets aren’t digital in the truest sense, because it’s account based debit and credit – meaning, your real money are transferred between banks and people. But, what this Central Bank backed Digital Currency would do is – it will open a safe, reliable, digital platform, and its blockchain will be locked and backed by the Central Bank, unlike the private crypto. Currency will be stable.
It may help in financial inclusion. It’s complicated. but here is an example: government wants people to spend their money for the growth of the economy; will people spend it only on terms that the government wants them to? Uncertain, though! But, if central bank issues digital rupee on phone with expiry date – like ‘if you don’t spend it in that time, it will be useless’, people will be bound to spend their rupee digitally.These features can be introduced, which is different from the usual digital transaction.
This, however, sounds apt. only on paper and theory. RBI deputy governor, last year, said that RBI is eyeing phased introduction of digital rupee so that there is no disruption. It’s a humungous matter of introducing parallel currency after all!
What does it mean for India?
It may be a revolution in technology. There was once a time when computers were opposed. But after a few years, India became world leader in Information Technology. So, it would be wrong to completely ban crypto in the country.
If we flip the pages of history – Retrospective tax was a bad legacy of the Congress government, and ruined image internationally. BJP government have abolished retro tax after 7 years in 2021 – indeed, a great move to strengthen the confidence of the investors. In the same way, legalisation of crypto will build the crypto ecosystem, provide jobs to the unemployed and be beneficial to advances in tech.
Earlier, government was allowing technology behind crypto and not crypto currency itself. It’s like allowing e-commerce but not online payments! Allowing crypto will boost economy and technology, and India may become a global leader in it. This is one of the ways India may reach and become a $5 trillion-dollar economy.
Abolition of retro tax is a welcoming step. In China 1/3 vehicles are electric. China is competing against Tesla in America. And, here we are hesitant to allow Tesla in India. We may have to be adaptive of changes; not resist but welcome changes and innovate.
(Pic Credits: Forbes India, India TV News, CoinGeek, etc)
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