Days after the 2022 Union Budget proposed a 30 percent tax on the sale or purchase of virtual digital assets like cryptocurrencies, the Indian crypto industry plans to seek a revision of the rate from the government.
Drafting a memorandum to that effect, the proposal, which will be headed by the Blockchain and Crypto Assets Council (BACC), will take into consideration the various implications of the new tax rules and their impact on the domestic crypto ecosystem and the economy at large.
The Budget also mandated an additional 1 percent TDS to be levied on crypto transactions exceeding a certain limit with the intention of establishing a record trail.
While such a virtual digital gift would be made taxable at the hands of the recipient, any losses incurred during the course of the transaction would not be eligible for a write-off against any other source of income. Except for deductions involving the cost of acquisitions, nothing else would be allowed.
Finance Secretary TV Somanathan had recently mentioned how cryptos are "legal, taxable, though unregulated" in India at present. He mentioned that taxing these virtual digital assets should not be equated with a stamp of government approval on crypto as a "solid asset class".
Somanathan noted that only the tax regime has changed, while the positive taxability status of crypto income remained unchanged. “The Income Tax Act does not exempt any income other than agri income. Income from cryptocurrencies has been taxable even before this law, it is taxable today, and it will be taxable after April 1. What is changing is the regime of taxation. It is taxable even before April 1 but not at 30 percent,” he said.
Given the timelines in place, the industry is gearing up for a reviewal before the ministry at the earliest. Many experts welcomed the taxation move, with the likes of Ashish Singhal, Founder and CEO, CoinSwitch, and Co-chair Blockchain and Crypto Assets Council (BACC) highlighting the "business-friendly approach" of the Budget and the need for industry-government collaboration "to help bring crypto-asset taxation at par with other asset classes and participate in the central government’s vision to promote economic growth".
Many expressed disappointment over the steep taxation rates as well. According to Harsh Bhuta, Partner, Bhuta Shah & Co LLP, while the Budget has provided long-awaited clarity on cryptocurrency taxation, it has come at a "steep cost".
"A tax rate of 30 percent on transfer of digital assets, without any deduction (other than the cost of purchase) and any set-off and carry forward of losses, will disappoint most investors," Bhuta said.
An online petition demanding the revision of the new tax rules has also been floating on the internet, created by crypto and blockchain education portal Crypto India Co-Founder Aditya Singh. The petition was further endorsed by Nischal Shetty, Founder, WazirX.
Kumar Gaurav, Founder and CEO of Cashaa, also observed how the current tax is a "little on the higher side".
The industry is calling for a more flexible tax regime, treating it at par with other asset classes instead of fixing a singular tax rate.
The income levels of crypto investors should be given due regard while deciding on taxes, since crypto as an asset class has been voraciously embraced by Indians, especially in Tier-2 and Tier-3 cities, an indicator that crypto has enthralled not just the rich as an investment avenue.
For instance, WazirX reported a 2,375 percent increase in sign-ups in 2021, from Tier-2 and Tier-3 cities. Even CoinDCX saw increased crypto adoption in cities like Indore, Lucknow, Pune, Patna, Jaipur and Agra, and other non-metro cities, as compared to their larger, metropolitan counterparts.
For such a section, a 1 percent TDS and the 30 percent tax rate might prove discouraging, the industry believes. Also, the current rulings subject crypto transactions to the same stringent measures that social evils like betting and gambling are accorded, which potentially dampens the creditworthiness of crypto as an asset.