The unregulated cryptocurrency world was blasted with a financial thunderbolt in India’s Budget 2022-23. Among other measures, the Finance Bill 2022-23 proposes establishing a new section 115BBH to tax virtual digital assets at 30%.
The level of taxation we were expecting was surprising, as was the decision not to exclude losses when calculating cryptocurrency earnings.
Things to know about the Indian Government bringing crypto under GST:
- Is taxing cryptocurrencies a way for the government to mainstream them?
Adding taxes to a crypto exchange transaction does not add validity or legality. It is not the responsibility of the Department to investigate the legality of any company, industry sector, or profession. We have been asked to examine the taxes on trade surpluses. The Board doesn’t have to delve into the legality of any particular professional competence. Taxes do not make it lawful. That is the solution. The law may consider cryptocurrency trading illegal, but gains from crypto trading are still taxable.
As a department, we’ve been delving into the complexities and mechanics of the crypto market. As a result, we have undertaken semi-intrusive investigations into their affairs as well as several exchanges in many jurisdictions. Our understanding of crypto trades, exchanges, and how investors make or lose money has now been solidified. We will now use the law to complement our data.
We now must consider crypto trading as an income-earning activity. There is a position for this in the Income Tax Act under sections 115PBH and 194S. The definition of virtual digital assets is defined in section 294A.
These three modest but important portions will help a trader or an exchange to handle their business in order to sort out the taxes element of the deal.
- What is the size of the bitcoin ecosystem in India?
We have some understanding of the Indian exchanges in operation. According to their estimates, they are in their forties. There are major interactions among these ten. The largest, with a revenue of 34,000 crores, is the most important. As a consequence, the business has increased considerably. According to unsubstantiated claims Ten crore people have allegedly invested in cryptocurrency in some manner. Quantum sizes range from extremely small to extremely enormous. We’re not concerned with the size of the investment, whether large or small. We want to know about the investment’s quality and where it came from. It barely matters regardless of whether you’re coming from or going to a recognized course. We’ll always check the source’s legitimacy.
Tax is not a variable that determines whether or not to invest. It is a crucial factor, but it is not the only one that motivates people to invest. Other things might be at play. Taxation is only one facet of it. The IT department has now taxed the excess at a certain rate. It also doesn’t give the deals any validity.
- What exactly are virtual digital assets, and how do you use them?
Information Technology Act Section 247A introduces the notion of digital assets. As defined by the definition, a digital asset is any code, information, or formula that is developed using cryptographic methods and has intrinsic value, and is capable of being shared or stored electronically.
This includes the NFT – which is a character or a digital asset. India currently exchanges these currencies. I’m not going to speculate on how many of them if any, meet the threshold for being classified as digital assets. There are better minds than mine to examine the definitions and comprehend the currencies.
- Isn’t 30% too high a percentage?
It is not a high tax rate, in my opinion. Companies are subject to a 30% tax. Taxation for companies and LLPs is the same as for individuals. It isn’t the highest rate. Thirty percent is simply one of the tax rates, and I don’t believe it represents the government’s maximum taxing ability. It might have been a lot more.
There might be a change. This is a tax rate that we considered to be appropriate. Cryptocurrency trading taxes have been formalized. As a result, when it comes to trading virtual digital assets, there is less uncertainty and more confidence.
- The tax treatment of cryptocurrency in the absence of a deal?
The Income Tax Act does not eliminate any earnings other than agricultural production. Taxes on cryptocurrency income were in place before the law passed. Before April 1, it is taxed, but not at the 30% rate. You will be taxed Depending on whether the money is earned as a business or as a capital gain. It fits into several sections of the IT Act and at reasonable pricing. That’s a little perplexing since it generates a lot of uncertainty and the opportunity for disagreements.
So, starting April 1, everything will be different, and there will be more clarity on taxation. It is, nevertheless, still levied today. Let me be quite clear on one point. There are no exemptions from taxes because they are not controlled. As a result, wagering on horse races is subject to taxation. In India, there is no horse racing regulation authority. It is, however, still taxed. All items are subject to taxes unless exempted.
Agriculture revenue is the only kind of income that is totally exempt. It makes no sense to regulate something when there are numerous alternatives available. There is room for uncontrolled lawful activity.
Then there’s the area of illegality. As a result, cryptography does not fall within the unlawful category. It hasn’t yet entered the legal and regulated arena. It exists in the grey area between legal and uncontrolled.
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