Budget 2022: Tax on digital assets, but cryptos see hope

Investors and startups operating in the virtual digital assets and cryptocurrency ecosystem hailed Finance Minister Nirmala Sitharaman’s move to tax at 30 per cent “any income from transfer of any virtual digital asset”, calling it the furthering of the “mainstreaming excitement” on the asset class.

Cryptocurrency investors and coin exchanges believe that the government moving to tax them provided them with clarification as well as the first step in eventually legitimisation of this asset class.

“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. 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,” said Ashish Singhal, founder and Chief Executive Officer of CoinSwitch.

Singhal is also the co-chair of Blockchain and and Crypto Assets Council, an industry body of cryptocurrency startups formed under the Internet and Mobile Association of India.

The industry’s optimistic outlook comes despite Sitharaman’s clarification that the move to tax should not be considered as a step of legitimisation of the asset class. In a post-budget interview, the Finance Minister said that she could not do anything on regulating or formalising a framework for regulation of cryptocurrencies or other virtual digital assets.

Apart from the Finance Minister’s caution on the issue, the government is yet to introduce The Cryptocurrency and Regulation of Official Digital Currency Bill. It was listed for introduction in the last winter session of the Parliament, and proposed to “create a facilitative framework for the creation of the official digital currency to be issued by the RBI”. It sought to “prohibit all private cryptocurrencies” while allowing for “for certain exceptions to promote the underlying technology”.

Despite these, cryptocurrency coin exchanges and other experts are confident that the taxation move is “a positive step as it legitimizes crypto and hints at an optimistic sentiment towards further acceptance of crypto and NFTs (non-fungible tokens) across stakeholders in the country.

“Tax has always been applicable to gains on virtual digital currencies, but the ecosystem did not have clarity on it. The move to tax virtual digital assets gives the entire ecosystem including investors and exchanges transparency on the road ahead. The government has come a long way in its stance towards crypto from last February to today and we are confident that this will herald a new era of growth and innovation for India,” said Avinash Shekhar, the chief executive of ZebPay, a cryptocurrency exchange.

The industry also cheered the government’s move to set up its own digital rupee, likely to be launched by RBI, and hoped it would familiarise investors as well as non-investors with virtual currency, while also “building an appetite” for the asset class.