Budget 2022: Crypto sector hopeful of regulatory approval as Centre introduces tax on digital assets

Mumbai: The crypto ecosystem has welcomed finance minister Nirmala Sitharaman’s proposal for a 30 per cent tax on digital assets for legitimizing bets on the assets considered as very risky by the RBI, even as a law on regulating such activity is awaited.

In her Budget Speech, Sitharaman has proposed the tax on income generated at the sale of any digital asset without any deductions, amid a growing proliferation of assets like Bitcoin even as the regulatory structure on them remains unclear.

“India is finally on the path to legitimising the crypto sector in India,” Nischal Shetty, founder and chief executive of crypto exchange WazirX, said.

Rishad Manekia, founder and MD of Kairos Capital, said the taxation along with the introduction of an Indian CBDC in 2022 gives a much clearer idea about the way forward for the blockchain ecosystem in India and how the government is thinking about this space.

BankBazaar.com CEO Adhil Shetty said India will now join a handful of nations to launch its own blockchain currency.

Polytrade CEO Piyush Gupta expects that in the near future, the government will continue to support and encourage digital currencies that will propel the gross domestic product (GDP) to USD 5 trillion as envisaged by the government.

Crypto exchanges raised over $638 million last year from venture capital investors as investors made a beeline, despite the lack of regulatory clarity on the matter.

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“The introduction of TDS (tax deducted at source) on crypto-transfers will enable the government to better monitor crypto transactions,” Amit Singhania, partner at Shardul Amarchand Mangaldas & Co, said in a statement.

However, Pranay Bhatia, partner and leader for tax and regulatory services at the consultancy firm BDO India, seemed to have differing views, saying tracking such transactions in the absence of a central regulator might be challenging.

In the absence of a law on cryptos, which was scheduled to be tabled in the winter session of Parliament itself, the regulatory aspects on crypto investments are as yet unclear.

Bitcoin rewards app Gosats co-founder and Chief Executive Roshan Aslam said, “While we eagerly wait for the crypto Bill, we expect positive and well-thought regulations going ahead, which are strongly needed for consumer protection.”

Sumit Gupta, co-founder and chief executive of crypto exchange CoinDCX, termed the Budget as “forward-looking and inspirational”.

“Taxation of virtual digital assets or crypto is a step in the right direction. It gives much-needed clarity and confidence to the industry. India’s focus on digital innovation and the promotion of blockchain technology is welcome,” he added.

However, accounting and tax-focused firm N A Shah Associates’ founding partner Ashok Shah called the move a “deadly blow” to the virtual digital ecosystem. “Proposed measure is a stiff provision and will adversely impact investment and dealing in digital assets.”

Meanwhile, industry players also welcomed the announcement to introduce central bank digital currency in FY23, which the RBI was intending to launch by the end of 2021.
Kashyap Mahavadi, founder and chief executive of fintech Dinero, said that with the introduction of the central bank digital currency (CBDC) and legitimising cryptos, India is now bringing out a revolution in financial systems.

Sumit Ghosh, co-founder and CEO of Chingari App (whose $GARI Social Tokens are listed on 19 global crypto exchanges), said information and awareness about crypto/ digital currency is currently limited in India, which is also a major challenge that needs to be resolved.

Ashish Singhal, co-chair of the Blockchain and Crypto Assets Council (BACC) and founder & CEO of CoinSwitch, said the regulatory guidance on tax from the government furthers the mainstreaming excitement of this emerging asset class with over USD 6 billion worth of investments in India.

Amarjeet Singh, partner and national lead (emerging giants and start-ups) at KPMG in India, said recognition of virtual digital assets and prescribing a proper tax regime will lead to the establishment of many more start-ups in this space.

Bhaskar Majumdar, managing partner at Unicorn India Ventures, said the tax on crypto/ NFTs will “now make it legalised and users won’t be able to circumvent tax and other financial regularities”.
NFTs are unique digital assets with verified ownership rights and the details are stored on a blockchain.

Rameesh Kailasam, CEO of IndiaTech.org, said the move to consider cryptocurrency and NFTs as virtual digital assets is a welcome move.

“However, more clarity needs to emerge on taxation for one trading in crypto as an exchange. Also, the cost of acquisition clarity is a must to ensure all related costs to enable the transaction are considered.

“The tax rate should ideally have been around 20 per cent instead of 30 per cent as it can potentially become a deterrent for many trading in India,” he added.

Keyur Patel, co-founder and chairman of GuardianLink and BeyondLife.Club, said virtual assets lumped into one by the government implies that crypto and NFTs are under the same bucket.

“NFTs are nascent in its classes and with such taxation, (it) will have to eventually adjust to grow the developing ecosystem,” Patel added.

Financepeer CEO Rohit Gajbhiye said financial inclusion initiatives will benefit banks and NBFCs if appropriate infrastructure is provided. “Digital banking and fintech emphasis, when combined with efforts to make conducting business easier will further provide momentum to the already-growing fintech space.”

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