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Is cryptocurrency losing its charm after the 30% tax deduction announcement?

If not exactly a full stop, the Indian government’s decision to tax Virtual Digital Assets (VDA), including cryptocurrencies, is definitely a comma for the entire crypto fraternity. This largely unregulated space has come under the ambit of tax in this year’s budget. And while the crypto lobby might rejoice, thinking the government is stepping up to give VDAs some sort of recognition, the truth is no such legislation to regulate cryptocurrencies has been released yet. At this juncture, it is natural to question if investing in cryptocurrency is still a good option? Are there better alternatives that investors can explore and get a better return on investment (RoI)?

What changed for cryptocurrency investment in the Indian ecosystem?

Many investors, small or big, young or old, started investing in cryptocurrencies and other VDAs because the space was unregulated and offered huge returns. Investment here was extremely risky but came with unparalleled returns that attracted most new-age investors. As a plus point, it was completely tax-free. However, by bringing VDAs under the Indian tax regime, the government has taxed crypto income higher than equity investments without offering any benefits. Clearly, the government is trying to curb speculative trading in this space. Suffice to say, cryptocurrency has lost its unconventional but highly profit-making charm.

Why is the new tax demotivating crypto enthusiasts?

In simple terms, the Government of India is telling the crypto lobby that if you profit on one token, automatically, 30% of its cut will be deducted as tax. Moreover, if you make losses in one token and profit in another, which results in an overall loss, you still have to pay a 30% tax on the profitable asset to the government. There will be no offsetting of losses. In addition, 1% tax will be deductible at the source. As an investor, you have to treat each virtual asset as an individual entity for the purpose of taxation. Not very encouraging, is it?

If not crypto, what can be a viable investment option?

Unlike cryptocurrencies, where many people invest because of fear of missing out (FOMO) and over-pumped publicity, investment options shouldn’t be propelled by emotions but by a strategic approach. At this juncture, where crypto and other VDA investments are proving highly uncertain and not exactly a profitable option, investors should look elsewhere.

At present, alternative options like real estate, hedge funds, crowdfunding, peer to peer (P2P) lending and commodities are proving to be highly remunerative. While the crypto market is highly volatile (Remember in March 2021, when the rumours about India considering a ban on crypto possessions started taking rounds, Bitcoin losses accelerated considerably), these investment options provide relatively stable returns.

In addition, if you are looking for long-term gain, backing a promising startup might be a far more lucrative investment idea than taking the cryptocurrency route filled with unsettled and unknown parameters.

In a nutshell

The bubble surrounding VDAs, including cryptocurrency, is gradually losing its exclusivity. The harsh tax imposition on VDAs indicates that the government isn’t planning to encourage this sector. At least not in a way the crypto fraternity is expecting. Therefore, it is better for new-age as well as the old investors to scout through other investment options and make informed decisions about their future investments.

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Disclaimer

Views expressed above are the author’s own.



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