The Union Budget 2022 take-aways

RBI to launch digital rupee using blockchain technology; income from crypto gain to be taxed at 30%

Indian Finance Minister, Nirmala Sitharaman presented her 4th Union Budget today, on 1st February 2022.

The 2022–23 Union Budget focused mainly on four key areas causing a major push in the Education and Finance sector. The country’s crypto investors were waiting for clarity from the government on recognizing digital virtual assets like bitcoin as legal tender. The finance minister made a big announcement in her budget speech for 2022–23 around crypto.

“Moving forward on this parallel track, we lay the following four priorities — PM Gati Shakti, inclusive development, productivity enhancement and investment, sunrise opportunities, energy transition and climate action,” FM said.

Investment section of the budget

Budget 2022 has offered more light to the grey area of the crypto space. The Indian government has taken a standpoint that it would treat crypto products as assets and not as currency. It is now very obvious that any kind of crypto products’ transfer from one person to another would be taxable. When it comes to such transfer of assets, including the sale of crypto, income taxes would be levied. This stand of the Budget will be applicable for all sorts of Digital Assets and NFT’s.

RBI to introduce digital currency from 2022

After much patience and waiting, the Finance Minister has proposed to introduce a digital rupee using blockchain technology. The same proposal to introduce a digital rupee by the central bank was also brought up earlier both by the government and the Reserved Bank of India.

“Digital currency will also lead to a more efficient and cheaper currency management system. It is therefore proposed to introduce digital rupee using blockchain and other technology to be issued by the Reserve Bank of India starting, 2022 and 2023,” FM

It is evident from the Finance Minister that the use of blockchain technology in the monetary system is efficient and cheaper and therefore the government has recognized the need to introduce blockchain technology. The proposal to introduce CBDC by the RBI is a welcome move from the industry as this will catalyze the growth and would help bring crypto to the mainstream. It is a way forward, given the digitization agenda that the country has concerning financial transactions. Using blockchain technology for the same provides better transparency and accountability.

Crypto gain to be a taxable income

While the previous stand of RBI was to ban private cryptocurrencies, today the Finance Minister made it clear that any income from the transfer of virtual assets will be taxed at 30%. This implies that the government is looking to regulate the industry rather than banning it.

“I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30%. No deduction in respect of any expenditure or allowance shall be allowed while computing such income, except the cost of acquisition,” FM Nirmala Sitharaman

While the proposed standard tax is quite high, explicit taxation would legitimise the industry. This clarity was the need of the hour and hence, now the traders could plan their trades accordingly. The proposed TDS as well makes sure the trades are accounted for monthly even though it hampers the intraday traders to some extent.

What’s more

  • 30% taxes applicable on profits from trading in crypto

Profits made at the sale of crypto or NFTs will be taxable at 30% tax without any deductions or exemptions. It would no longer be considered as Short Term or Long Term Capital Gains. There are also no minimum profits provided for exemption. No matter how small the profit is, it will be taxable under the 30% slab.

  • 1% TDS to record and monitor transactions

All the crypto transactions will be taxed at 1% as TDS. This would be the government’s approach to monitor all transactions happening in the crypto space. This approach might prove to be slightly drastic for intra-day traders as they buy and sell on the same day and do numerous such transactions. The same traders will also be liable to pay 30% taxes on profit as well. This will also affect the volume of transactions happening in the crypto space within India. For the days to come, it might be a bad move from the government’s side to impose such high TDS, given some investors tend to do transactions for small profits, especially for intraday traders and short term investors.

  • Gifts will be taxable as well

The gifts given to family or others were not taxable for fiat or any traditional asset, but when it comes to crypto, the crypto gifts will be considered for taxes and the recipient will be liable for taxes. It is unclear as to if the recipient should pay taxes considering the acquisition cost of those assets or if the entire amount becomes taxable.

  • The losses of crypto trading cannot be offset by profits from other sources or the other way around.

The profits earned through crypto will be taxable without any exemption, but in case of loss in crypto, such losses cannot be offset through profits from other sources and vice versa. The losses in trading from crypto cannot be carried forward as well to the next financial year to be exempted from profits earned in the next year.

To make it more simple to understand the new tax rules, let’s take a look at the below example.

So far, it was falling in the same income tax slab of taxation starting from the income of 5 Lacs p.a. Because if a person’s income is 4.5 Lakhs, and the profits they made out of crypto is 60k, the total taxable income would be 5.1 Lacs and it would be as per income tax slabs.

But with the new tax regime in place, the 60k profit from crypto would get taxed directly at 30% followed by the normal slab-based taxes for the person’s income of 4.5 Lakhs.

There are multiple factors and very minute details accounting for these calculations that need to be considered and it might be more difficult to file the taxes especially for intra-day traders. Some relief was expected from this budget, but the high TDS and high taxes of 30% might make people more cautious when they trade crypto. India is moving forward towards the regulations in the crypto space making us one of the first to have regulations. These regulations might seem a little heavy on taxpayers, but it also indicates how volatile the crypto market is. It’s high time for us to see how people react to it and it would be interesting what the future of the Indian crypto space will be like.

The move of the government today is a great step to bringing crypto to the masses. While the “legality” status of crypto assets may still be in question, the progress can be seen through the government recognizing the crypto assets’ class. Thus, the budget 2022–23 has given a big push to the industry.

Sathvik Vishwanath

Co-Founder and CEO

Unocoin

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