Now Legit: Cryptocurrency
By bringing in taxation and proposing India's own digital currency, the government has cleared the ambiguity surrounding the nature of crypto transactions, believes India's crypto stakeholders
India's crypto lobby is having the last laugh today. The unexpected announcement of a 30 per cent tax on the proceeds of virtual or digital assets and the proposal of India's own digital currency is being unanimously welcomed by the crypto industry.
"There has been a phenomenal increase in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide a specific tax regime. Accordingly, For the taxation of virtual digital assets, I propose to provide that any income from the transfer of any virtual digital asset shall be taxed at the rate of 30 per cent," said finance minister Nirmala Sitharaman, while presenting Union Budget 2022 on Tuesday. Further, a TDS of 1 per cent will be levied for transactions above a certain threshold and recipients will be taxed in case of a gift of virtual digital assets.
This decision has cleared the ambiguity surrounding the nature of crypto transactions.
Even though no law has been enacted, the announcement is being looked at as the first step in ensuring crypto trading becomes legal. "By bringing in taxation, the government legitimises the industry to a large extent. The majority of people, especially corporates, who have been sitting on the sidelines because of uncertainties will now be able to participate in crypto. Overall, it's a positive move for the industry," said Nischal Shetty, founder and CEO, WazirX.
Even though a miniscule section of the industry feels that the taxation and TDS on digital assets may hit user sentiments, it is negated by the overall jubilation over government's decision to move on the path to legitimising the crypto sector in India. "Taxation and TDS on digital assets have come as a sudden move for the industry. It might hit user sentiments in the short term; however, we shall see how the ecosystem evolves in the country and are committed to work as per the rule of the land," said Arun Pandey, co-founder, Beyondlife.club.
According to crypto research platform CREBACO, cumulative investments in cryptocurrencies in India jumped from $1 billion in 2013 to more than $10 billion in November 2021. Elaborating on what the budget announcement means to this emerging asset class, Ashish Singhal, founder and CEO, CoinSwitch and co-chair Blockchain and Crypto Assets Council (BACC), said, "The regulatory guidance on tax from the government furthers the mainstreaming excitement of this emerging asset class with over $6 billion worth of investments in India. It is also the gateway to the future decentralized world, aka Web3.0. Today's digital-savvy Indians are willing to experiment with this emerging asset class. The budget provides clarity on taxation and shows the government's intent to take a business-friendly approach while protecting the interest of consumers and the exchequer."
While the Crypto Bill is still pending, the government's announcement to treat private virtual assets as a taxable asset class has given the confidence to crypto players that there will not be any ban on cryptocurrency in India. The announcement came as a surprise as even though the government had announced its plans to introduce a bill to regulate cryptocurrency in the winter session of Parliament, it did not happen.
Additionally, in July 2021, the Reserve Bank of India (RBI) had said it was working towards its own digital currency as these instruments pose immediate risks to customer protection and anti-money laundering and combating the financing of terrorism. RBI deputy governor T Rabi Sankar had called it Central Bank Digital Currency (CBDC) and said that it would be the same as a fiat currency and exchangeable one-to-one with the fiat currency.
The announcement of a digital currency using blockchain by RBI in 2022-23 during the budget comes in line with that and is expected to lead to a more efficient and cheaper currency management system. Many industry experts welcomed the move as soon as it was announced yesterday. Paytm founder and CEO Vijay Shekhar Sharma tweeted, "#CBDC जय हो ! What an incredible announcement of #Budget2022!"
Interestingly, this decision aligns with the global shift towards CBDC. According to the Atlantic Council, 87 countries representing over 90 per cent of global GDP are exploring a CBDC at present as against May 2020, when only 35 countries were considering the same. "The announcement on the launch of a Digital Rupee using blockchain issued by the RBI will familiarize Indians with the benefits and efficiency of virtual currency, building an appetite for the crypto, blockchain and the multitudes of innovations and employment opportunities that these technologies are capable of fostering," said Avinash Shekhar, CEO, ZebPay, a crypto exchange platform.
This is a boon for startups in the NFT space such as NFTically, Fantico, Beyondlife.club, GuardianLink as well. "We have always maintained, NFTs are digital goods, and goods have always been appropriately regulated. Being digital regulations require some clarification and additions, but fundamentally NFTs are not un-regulated. The mention of NFTs in the budget and taxation associated with this, e.g. 1 per cent TDS is similar to what we see on marketplaces like Amazon. This further ratifies our position," said Ankit Wadhwa, co-founder and CEO, Rario, a marketplace for cricket NFTs.
Overall, the industry has expressed that the government's positive outlook towards crypto and blockchain will open up the sector, encourage compelling discussions and provide an impetus to digital assets in India. "The clarity on taxation will provide further stability to the sector and the investors of virtual assets. Since the announcement, the cryptos have shown a favorable response with increased buying. With the Budget announcement taking cognizance of this landscape, we would like to see the legal implementation of this emerging asset class in India. The sector holds the immense potential for the creation of job opportunities as well as contributing to India's $5 Trillion economy vision," said Siddharth Menon, COO, WazirX.