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Budget 2022 | Government rolls out tax regime for all virtual assets, experts hail move 'legalising' crypto

Budget 2022 | Over the past year, there has been a boom in individuals investing in cryptocurrencies, with exchanges crossing millions of users

February 01, 2022 / 01:21 PM IST

Income from virtual assets will be taxed at 30%, said Union Finance Minister Nirmala Sitharaman while presenting the Budget for FY23 in parliament on February 1.

One percent TDS (tax deducted at source) will be deducted on these investments. The experts, however, added that the tax regime means the government has legalised cryptocurrency as an asset.

The government has announced long-pending clarifications on cryptocurrencies, addressing concerns including aspects pertaining to their status, security, and taxation.

"Clarity on income tax is a huge positive step for the crypto industry. This also removes any fear people had about impending ban. We now know that the government is definitely inching towards regulations in this sector," said Nischal Shetty, founder of crypto exchange platform WazirX.

The introduction of a tax policy framework for earnings from cryptocurrency was one of the major concerns, given the ambiguity over the status of the digital currency and related transactions.

Sathvik Vishwanath, co-founder and CEO of crypto firm Unocoin, said, "The announcement has brought a lot of clarity on taxation, there will be no more confusion on how to tax the gains from crypto. We think this tax will be applicable to both trading customers and exchanges earning from cryptocurrencies. However, the 1% TDS may impact trading volumes in India as many individuals do day trading as well."

"A 1% TDS for every transaction may be more for such trades and hence may impact volumes," he added. However, he said that hoepfully the government will treat cryptocurrency as an asset so that "it falls under the ambit of long-term or short-term capital gains. But as of now there seems to be a single tax rate".

Over the past month, many cryptocurrency exchanges had come under the tax department’s scrutiny. WazirX paid Rs 49.2 crore after the department detected evasion of goods and services tax worth Rs 40.5 crore.

The tax department has internally interpreted crypto currencies as a digital asset, though there is no official categorisation of digital assets under GST laws.

Ritesh Kumar, partner, IndusLaw, said, "It is not in line with what the industry was expecting."

Over the past one year, there has been a boom in individuals investing in cryptocurrencies, with exchanges crossing millions of users. Funding in crypto startups has taken off and the sector raised $511 million last year, according to data provider Venture Intelligence.

Over the past few weeks, cryptocurrencies have seen a major fall after the US Federal Reserve’s decision to increase interest rates by March spooked the global markets. The stock markets globally too saw a sharp selloff based on the US Fed’s hawkish stance.

The FM also announced that the RBI will launch Digital Rupee in 2022-23, marking the first official statement from the Union government on the launch of much-awaited digital currency. FM also added that the introduction of CBDC will further enhance India's status as a digital economy.