Monday, Aug 08, 2022

Budget 2022: Government Likely To Discuss Crypto Taxation Not Regulation

The questions on everyone’s minds are whether or not the government will come up with a crypto regulation in the Budget session and how digital assets will be taxed.  

Budget 2022: Crypto Taxation
Budget 2022: Crypto Taxation

As more and more Indians start investing in cryptocurrencies, investors are waiting with bated breath to find out what the Budget session will decide on its taxation and the contentious issues of regulation.

Outlook Money spoke to industry stakeholders to put the piece together on what’s in store for cryptocurrencies and to answer two key questions—whether or not the government will come up with regulation and what will happen on the taxation front.

Will the Government Introduce Crypto Law? 

The government is unlikely to come up with a regulation on cryptocurrencies in the upcoming session of Parliament, two industry experts told Outlook Money, on the condition of anonymity. They said the government is in the observation phase and may take a decision after more discussions. “The regulation on cryptocurrencies being discussed by the government may not come up in the Budget session,” says the first person.

One of the issues that may affect India are the steps taken by Singapore to shield retail investors from potential risks through advertisements. It released guidelines that limit cryptocurrency trading service providers from promoting their services to the general public. 

“The Monetary Authority of Singapore (MAS) guidelines will have repercussions on the guidelines on advertising currently being prepared by the Advertising Council of India. The government is keeping a close eye on other countries to see how they are treating cryptocurrencies. They might take a decision on regulations later,” says a third expert, who spoke on the condition of anonymity.

The cryptocurrency bill was tabled in the Winter Session of Parliament but didn’t go through. “At that time, the Reserve Bank of India (RBI) was not ready with any decision related to cryptocurrencies. RBI will play a major role in this,” says the second person.

Will the Government Clarify On Taxation of Cryptos? 

While experts do not expect that a crypto law may see the light of day this Budget session, some of them are expecting the government to move on the taxation front.

“We had submitted a detailed set of recommendations around budget expectations across startup sectors one of which was around cryptocurrency. Since the financial year is already drawing to a close, it is necessary that the budget lay the groundwork for clarity on the taxation of cryptocurrency assets. We are hoping that the budget will address all the Direct Tax issues faced by startups across sectors and cryptocurrency in particular,” says Ramesh Kailasam, president and chief executive of IndiaTech. 

High tax rate prediction: A fourth industry expert, who spoke with Outlook Money on the condition of anonymity, predicts a high tax rate on the trading of cryptocurrencies. “GST (on cryptocurrencies) is likely to remain the same—at 18 per cent. Moreover, the direct and indirect tax will be together above 30 per cent,” he says. However, the government may not categorise crypto in the gambling category, he added.

“Cryptocurrency disclosures can be made mandatory by amending the existing Section 26A of the Income-tax Act. To shore up its revenues, the government might slap higher taxes on crypto as high as 35-40 per cent,” says Sharat Chandra, vice-president, research and strategy, EarthID, a global decentralized self-sovereign identity management platform.

Foreign transactions: Clarity is also awaited on foreign transactions “Suppose X person who was earlier trading in A exchange in the US wants to shift his or her holdings into an Indian B exchange, charges may apply,” said the first person Outlook Money spoke to.

“The government may clarify on this aspect in the Budget session. Crypto might come under (FEMA) Foreign Exchange Management Act,” says the second person mentioned earlier.

Due to the digital nature of cryptocurrencies, there have been a lot of violations of FEMA in the last few years and clarification on this aspect is the need of the hour, adds the second person.

Watch this space to know what happens finally.