DNA Special: Budget 2022 – Implications of the government’s decision on cryptocurrency

The Union Budget 2022 is a futuristic budget that outlines the economic roadmap for the next 25 years, i.e., up to 2047, when India will complete 100 years of its independence. Along with being futuristic, the budget aims to make India a super power in the digital world. It has announced a 30 percent tax on earnings from digital currency. Budget also announced that the Reserve Bank of India (RBI) will launch India’s new digital currency this year. Apart from this, many big announcements have also been made for the expansion of digital services in the fields of education, health and defence. Banks will also be digitally linked to the Post Office of India Post.

But the point that became the headline of this budget is the new tax imposed by the government on digital currency or crypto currency.

30 percent tax will now be levied on earnings from digital currency in India. This means, if a person invests Rs 100 in a digital currency now and he gains Rs 10 on it, 3 rupees out of this profit will have to be paid as tax.

Apart from this, one percent TDS will have to be given to the government separately on every single transaction of digital currency. Suppose, a person has invested in a digital currency. This investment is his asset. Now if this person transfers this asset to someone else, he will have to pay TDS separately at the rate of one percent on the total cost of that asset. TDS stands for Tax Deduction at Source. That is, the tax that is levied on a source. For example, the tax that the government charges on the salary you get every month is TDS. That is, overall, the government is considering digital currency as an income source and 30 percent tax has also been imposed on its earnings.

Now a lot of people are asking the question whether the government has taxed digital currency and made it legal?

The answer lies in both yes and no. In fact, the government is considering only those digital currencies as legal which will be issued by the Reserve Bank of India. This means that the cryptocurrency that exists right now, such as Bitcoin, will not be considered digital currency. Rather, it will be considered a digital asset. If you find it all complicated, then think of it as if the gold you buy or what is your home is your asset. It is your property, not a currency. Similarly, cryptocurrency will be an asset to the Government of India, and people will be taxed on it. So, if you are thinking that a digital currency like Bitcoin has been considered legal, then it will not be technically correct. However, people will be able to invest in it.

At present, in countries like the US, UK, Italy, Netherlands and Australia, digital currency is taxed in the same way by the governments there, due to which this currency is considered legal in these countries. However, in some countries, there is an exception to this.

Under this by the year 2023, the Reserve Bank of India (RBI) will launch its digital currency separately, which will be more secure and stable than the rest of the currencies. In simple language, it’s like… The RBI prints paper currency, just like that, the digital currency with its seal will also come, which will enable people to invest in it. One more thing in this budget was not noticed by many people and that is, if a person sends a gift digital currency to another person, then in such a situation, the person who gets this currency, he will have to pay 30 percent tax.

One of the major reasons behind this decision of the government may be that the number of people who have invested in cryptocurrency in our country, are about 8 percent of the population. These people are currently betting their Rs 70,000 crore as digital currency. Indians are at the forefront of using cryptocurrency in the whole world. Simply put, this 30 percent tax will directly give a guarantee to an investment of Rs 70,000 crore. And it may increase its use in India. Secondly, the government knows that after this decision, people will be encouraged to invest in digital currency. So, the choice.

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‘Is cryptocurrency legal now?’ asks Congress as Centre imposes 30% tax on digital assets transfer

Finance minister Nirmala Sitharaman on Tuesday announced the Union Budget 2022-23, during which she declared that the central government is imposing a 30 per cent tax on virtual digital assets, bringing cryptocurrencies and non-fungible tokens (NFTs) under a tax net. Reacting to the announcement, Congress general secretary Randeep Singh Surjewala asked the finance minister to clarify whether cryptocurrency has been made legal now.

Also Read | ‘Crypto tax’ is here. India imposes 30% tax on proceeds of digital assets

Pointing out that the cryptocurrency-related bill has to first pass the Parliament before the government can consider imposing a tax on cryptocurrencies, the Congress leader asked Sitharaman to clarify three key questions regarding the Centre’s stance towards digital tokens –

1. What about cryptocurrency regulation/regulator(s)?

2. What about the regulation of cryptocurrency exchanges?

3. What about investor protection?

Taking to his official handle on Twitter, Surjewala posted, “And Ms. Finance Minister, pl do tell the Nation – Is Crypto Currency now legal, without bringing the Crypto Currency Bill, as you tax the crypto currency?”

Notably, finance minister Nirmala Sitharaman on Tuesday announced a 30 per cent tax on any income from the transfer of virtual digital assets, specifying that no deductions and exemptions will be allowed.

The gifts are to be taxed on the hands of the recipient, she said, adding that there will also be a 1 per cent tax deducted at source (TDS) on the payments made for the transfer of digital assets. It was also announced that any loss made on the transaction of such digital assets cannot be set off against any other gain.

In her Union Budget 2022 announcement, finance minister Nirmala Sitharaman also said that the country’s central bank, the Reserve Bank of India (RBI), will introduce a digital currency in the next financial year using blockchain and other supporting technology.

Also Read | ‘Nothing Budget’: Political reactions pour in after finance minister Nirmala Sitharaman’s speech

“Introduction of a central bank digital currency will give a big boost to the digital economy,” Nirmala Sitharaman said on Tuesday while presenting the federal budget. “Digital currency will also lead to a more efficient and cheaper currency management system.”

Earlier, India’s central bank had voiced “serious concerns” around private cryptocurrencies on the grounds that these may cause financial instability.

The introduction of the much-talked-about Cryptocurrency and Regulation of Official Digital Currency Bill was highly anticipated this year, but the government left it out of its agenda in the ongoing Budget session. However, speculation was rife regarding the central government’s official stance towards cryptocurrencies and any potential taxes that might be imposed on the same.

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