Budget 2022: What it means for the Indian crypto community
While cryptocurrencies might not have had a great start in 2022, with the market being bearish, the budget of 2022 came as a welcome surprise for the Indian crypto community. Crypto has been declared as a taxable asset in India with a flat 30% tax on gains from it.
While the passion regarding the tax introduction is high in the crypto community, the budget was not all regarding the tax updates. Let’s quickly look at what all was discussed in the budget through a crypto-focused lens.
Brief Synopsis of Crypto Mentions in Budget
Here’s all that was covered in the Indian budget 2022, on cryptos and blockchain:
- The profits from the trading of virtual digital assets (VDAs) such as cryptocurrencies, crypto tokens, and non-fungible tokens (NFTs) would attract a tax of flat 30% in addition to surcharge and cess.
- A tax deducted at source (TDS) at the rate of 1% has been introduced where the transaction value is above a certain threshold. Through this, the government aims to keep the track of the digital movement of the crypto assets along with widening the tax base.
- Any gifts in the form of VDAs will be taxed, with the receiver bearing the liability for the appropriate tax declarations.
- India will introduce their first Central Bank Digital Currency (CBDC), the Digital Rupee. As the name suggests, Digital Rupee will be a digital form of Rupee and will be monitored and regulated by the Reserve Bank of India. Here, RBI will be the guarantor of the Digital Rupee, just like for fiat coins and currency.
With this let’s now understand the importance of each of these on the future of the Indian crypto industry.
Recognition to the Crypto Sector
The tax introduction comes as a sigh of relief to the investors, companies, and professionals associated with the crypto trade in India. Just a few years back, sources from the highest level of the government and RBI expressed their disdain regarding the circulation of cryptocurrencies in the Indian market. Over the years, the government has warmed up to the idea of cryptocurrencies, abandoning the calls for an outright ban to focusing on setting up regulations around this digital asset. Now, the introduction of taxes means that the government too recognises the potential of cryptocurrencies to influence the global financial standing of the country.
The crypto sector in India is booming. As per a report by the National Association of Software and Services Companies (NASSCOM), the Indian crypto-tech industry will touch $241 million by 2030! And this estimation was when the industry faced ambiguity surrounding its future in the country. With that ambiguity becoming a thing of the past, the industry will definitely achieve this benchmark way before 2030. Interestingly, what will propel the industry to new heights is that Investing and trading in crypto is no more a fad. Instead, it can now be seen as a legal full-time profession for crypto enthusiasts. This brings us to the next part of the discussion.
First Step Towards a Legal Framework for Cryptos in India
A crucial byproduct of the tax introduction is that the crypto sector has taken the first step towards a legal framework. In the past, while the crypto sector in India grew exponentially over the years, it still was always in the fear of being outlawed at any point in time. The introduction of tax laws give the industry the much-awaited legal status it craved priorly.
And that’s not all. This is the first in the series of laws that can be expected for the crypto sector. This was a highly impossible scenario that the crypto industry would grow without any involvement of the legal administrative bodies. The journey ahead will now comprise the growth of the industry, with rejuvenated vigor, under the legal umbrella of Indian administration. And who will benefit the most from this? Yes, you guessed it right, the investors!
The shift of Investors, Corporate & Banks
India recorded the highest number of unique crypto users in 2021, with a gigantic 2 crores of users invested in the crypto sector. And again this was at the time when the future of the industry was in ambiguity. Now, with the tax regime in place, the crypto sector directly falls under the watchful and protective eyes of the Government of India.
This level of assurance was often sought by veteran investors, who have been part of the equity sector for years. With the legal status in place, the crypto industry will see an influx of traditional investors. This will further invite the biggest players in the Indian equity sector, whether investors or companies, to join the crypto market. Along with renewed professionalism in the trade market, an increase in derivatives trading and the introduction of new exchanges are expected.
Another key change that is expected is that RBI’s stance on cryptos will finally soften. In the past, RBI had been vocal to bring a ban on cryptocurrencies. Interestingly, the global crypto community saw this as an expected response to the promise of a decentralized digital financial system that cryptocurrencies offer. However, now that the VDAs have finally become an instrument in the financial framework of the nation, the banks should not miss out on any partnership with the crypto sector.
Understanding the 30% Bracket
Whether you like it or not, taxes work the way they do, and perhaps for good reason. The question however stems down to — why only 30% tax slab for crypto profits?
The 30% tax slab is the highest in the country and is historically levied on the winnings from lotteries, games, puzzles and likewise mediums. The government’s action of putting cryptos in a similar basket symbolizes that it is still speculating about the popularity of cryptocurrencies in the country. The government is testing waters and the results will help them draft a better framework under which the crypto industry will grow. This directly implies that cryptos will not go anywhere and will be a part of the Indian investment arena.
So, why waste any more time? Register yourself in India’s top-rated crypto exchange and join the rewarding world of crypto assets!