The Union Budget is the most important annual financial exercise of the Indian government. The fiscal decisions taken might just alter the fortunes of companies, impact business decisions, and change the income tax structure for millions of citizens. In 2023, the Union Budget is all set to be presented on February 1, and all industries and sectors await positive developments in terms of a healthier investment climate and rational taxes.
According to the Finder Cryptocurrency Adoption Index, 274.5 million Indians already own crypto, despite the unclear regulatory status of virtual digital assets in the country so far. Positive regulatory measures can bolster this growth further, and it’s only natural that the Union Budget 2023 is expected to clarify the state of crypto in India, their taxation rules, and the status of VDAs, among other things.
Crypto taxation in India
In 2018, the RBI had imposed a ban on crypto trading in India, with instructions for banks and other financial institutions to stop dealing in virtual digital assets. However, in March 2020, the Supreme Court revoked the ban, paving the way for the growth of crypto in India.
Fast forward to the 2022–23 union budget, the government announced that:
- Gains from crypto assets would be taxed at 30%, regardless of an individual’s income tax slab rate.
- In addition, a 1% tax deducted at source (TDS) was applied to the transfer of these assets.
This TDS can be a concern for frequent traders — intra-day and short-term traders — as it can cause a significant portion of capital to be frozen if they transact more than a handful of times. Despite this, the strong rally in crypto assets has attracted millions of investors in India, including those in tier-I and tier-II cities, to pour billions into these digital assets.
However, experts have noted that even after eight months of the implementation of crypto taxation, many people are still unaware of the rules. Some people may still believe that taxes are only applicable when they convert their crypto and withdraw it into their bank account.
How the taxation laws are working in practice
The flat income tax rate stated in Budget 2022 is applicable to all retail investors, traders, and any user transacting in crypto assets with no distinctions having been made between long and short term trades. With the Union Budget 2023 just days away, industry associations and trade bodies are busy submitting memorandums to the Union Finance Ministry for favorable policy measures in taxation.
With the current capital gains tax regime, crypto investors are the most affected as gains on digital assets are taxed at 30%, with a further 1% TDS on the transfer of digital assets. Industry leaders in India mainly want some uniformity in tax levels between similar asset classes and a revision in the base year for calculating indexation benefits, which was last revised in 2017.
Most experts claim that there should be just two basic rates for capital gains tax in India — one each for short- and long-term investors. Introducing such a measure in Union Budget 2023 would reduce confusion and litigation and improve ease of doing business.
What’s more, the Indian Finance Act of 2022 introduced a new flat rate scheme under Section 115BBH for the taxation of income arising from the transfer of virtual digital assets, starting in the 2023–24 assessment year. This scheme applies equally to both resident and non-resident taxpayers.
The status of virtual digital assets (VDAs) is important in determining whether the income arising from VDA transfer is taxable in India for non-resident taxpayers. The status of an asset refers to its location. This is used to determine whether the income derived is taxable in a particular jurisdiction.
The status of an asset is only relevant for non-resident taxpayers and not for resident taxpayers. For resident taxpayers, if an asset is transferred and its sale proceeds received outside India, no taxability arises in India, with the exception of shares or interests referred to in Explanation 5 to Section 9(1)(i). These taxpayers will only be taxed in India on income arising from the transfer of any property, asset, or capital asset situated in India.
Currently, the Indian Income Tax Act does not contain any explicit provision to identify the status of VDAs. Determining the status of intangible assets can be complex due to various factors including the nature of the asset, the obligations attached to it, and the laws of the state that created the asset and any interests in it. Conflicts and confusion can arise when there are multiple criteria on which the status of an intangible asset can be based, and this can lead to difficulties in determining the taxability of income arising from the transfer of the asset. The union budget 2023 is expected to provide better clarity on it.
What can we expect from the Union Budget 2023–24
The Union Budget 2023 is expected to deliver on similar lines to the previous ones, with renewed push on capital expenditure and meeting social welfare goals in health, education, subsidies, and others. The prime expectations from the Budget 2023 include:
is a transparent domestic regulatory law, which would immensely help the crypto industry. Other countries worldwide have moved in this direction, and crypto proponents in India hope for similar policy changes.
It is also expected that the Indian government will provide clarity on the determination of the status of VDAs in the Union Budget 2023.
- Clear definition of crypto assets: The crypto sector expects the government to provide a clear definition of what is a crypto asset, and where it stands in terms of regulation and taxation.
- Clarity on regulations: The crypto sector is looking for more transparent regulations and guidelines for the industry.
- Taxation: The crypto sector hopes for a clear and fair tax structure for virtual digital assets, in order to promote the growth of the industry and prevent tax evasion.
- Support for innovation: Industry leaders are hoping for the government to take steps to provide support for innovation and research in blockchain technology and crypto assets, to accelerate the development of the ecosystem. Possible areas for investments include secure storage solutions and advanced safety measures.
- Banking Support: The crypto sector hopes for further support from the government in providing banking services to the crypto industry, as most banks are still reluctant to provide services to crypto companies.
Conclusion
While crypto is yet to receive a clear regulatory status in the country, India still managed to rank second in the Chainalysis 2021 Global Crypto Adoption Index. Crypto ownership rate in India is already 29%, way beyond than the global average of 15%. Keeping the steady increase of Indian crypto users in mind, it’s pretty clear how positive regulation would further boost India’s burgeoning crypto ecosystem.
Crypto industry leaders in India are pinning a lot of hope on the Union Budget 2023, and a clarity regarding the existing taxation, as well as some more favorable policies would certainly contribute to growth of the crypto and web3 space in India, while bringing benefits to the traders and investors.
If you are interested in crypto trading in India, give our website a visit today to get started!
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
