Cryptocurrency Tax in India (Budget Speech 2022 expectation): While most of the crypto industry and tax experts are expecting that Budget 2022 will introduce rules for taxation of cryptocurrency income, they are not sure whether Finance Minister Nirmala Sitharaman will touch upon this issue in her Budget speech, according to over 20 experts who participated in a pre-budget survey by FE Online.
Some experts think that Finance Minister’s Budget Speech 2022 may not directly address the cryptocurrency matter. Also, the much-awaited Cryptocurrency Bill may not be introduced in the upcoming Budget Session of Parliament.
“It seems improbable that the government will directly address ‘cryptocurrency’ in the upcoming Budget Session, as this would send a good signal to the market regarding pending regulations. At the same time, the government cannot afford to miss out potential collection of over Rs 3000 crore of tax liability generated by the recent bull run,” Gaurav Mehta, Founder of Catax, an online crypto auditing and taxation software, told FE Online.
“Citizens are filing crypto earnings as “Other Sources of Income,” which should ideally be taxed as capital gains because “earnings are derived from capital mobilization,” such as investment in the financial market, but clarity is awaited,” he added.
Sharat Chandra, VP- Research and Strategy at EarthID, a self-sovereign Identity Management Platform, said the government has the opportunity to increase the tax base and increase tax revenue numbers by incorporating amendments pertaining to crypto in the existing tax framework.”
“High Networth Individuals have already started moving their funds to crypto wallets outside India. Crypto ecosystem and investors alike are looking forward to clear tax guidelines. The government shouldn’t dilly dally else it will risk losing a significant chunk of potential tax revenue numbers. The budget is expected to offer clarity in terms of taxation of digital assets. Regulation is unlikely to feature in this budget session,” he added.
No Crypto Bill in Budget Session
Rohas Nagpal, Chief Blockchain Architect at the HyFi Blockchain, said, “I expect the upcoming Budget 2022 to address the taxation related concerns of the Crypto industry. The major concerns for individuals are income tax and capital gains tax rates on crypto profits. For exchanges, the main concern is around the applicability and rates of GST on crypto transactions. However, I do not expect the Crypto Regulation bill to be introduced in this session.”
According to Suman Bannerjee, CIO, Hedonova, the clarity on cryptocurrency taxation is definitely awaited but it is unlikely to materialize till the Cryptocurrency Bill is passed in the next Parliamentary session. “India is likely to classify cryptocurrency as an asset class, levying short-term capital gains tax if the holding period is less than three years. Further, a higher tax rate of 30% may be levied on sale akin to winning a lottery,” he said.
As per estimates, cryptocurrency investments by Indians has crossed Rs 6 lakh crore and the number of investors has grown exponentially to over 10 crores though these numbers can be debated as most users may not have an average Investment of more than Rs 5000. As most of these investments may be small and Micro in nature, the government may not be prepared to go for a tough clampdown.
Nishant Shah, Partner, Economic Laws Practice, said the Cryptocurrency Bill is unlikely to be introduced during the budget session, it is expected that in the upcoming budget, some broad indications may be revealed on the contemplated regulatory framework e.g. the extent of ban on cryptocurrencies, its treatment as a legal tender, permissibility to trade etc.
“Pending the announcement of the Cryptocurrency Bill, it is expected that the government would announce provisions under the Income Tax Act and the Foreign Exchange Management Act to clarify the treatment of money invested in cryptocurrencies. This in turn will put to rest controversies being raised by authorities. If however Government intends to clarify all aspects only through the Cryptocurrency Bill, then in the interim, there ought to be an assurance by the Government that no adverse or penal consequence will arise in relation to the current position adopted by the assessee, till such time that there is clarity on the issue,” he said.
Praveen Kumar, founder and CEO of Belfrics Group, said, “Even though there is a consensus that the cryptocurrency bill might skip the budget session also, we should expect teasers for the proposed regulatory framework.”
What other experts said
Harsh Bhuta, Partner, Bhuta Shah & Co LLP
The government will receive a huge boost to its direct and indirect tax collections with clear guidelines on the taxation of cryptocurrencies. Much clarification is required on problems such as treatment of capital gains v/s business income, TDS/TCS implications, GST implications on sale and trading of cryptos, classification as speculative income, allowability of set-off, carry-forward of losses. The Budget 2022 may bring such transactions within the ambit of Specified Financial Transaction (SFT) along with due reporting and disclosure requirements in income tax returns.
Edul Patel CEO and Co-founder, Mudrex
Finance Minister Nirmala Sitharaman had earlier stated that the cryptocurrency sector cannot be ignored anymore. The Government had also stated that it might be classifying cryptos based on use cases. These instances suggest that the Government is definitely looking for ways to address the concerns regarding the taxation, classification, and regulations in the upcoming budget plan. Even if the crypto bill is not presented, believing at least the crypto coin-related factors which require some changes in few existing laws will be addressed. Let’s optimistically hope for progressive guidelines that can drive the crypto spectrum as well as the country in achieving Digital India and $5 trillion economy visions.
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Sumit Gupta, Co-Chair of Blockchain and Crypto Assets Council (BACC) and Co-founder and CEO, CoinDCX
While we all are hopeful and waiting for a progressive regulatory framework for crypto eco-system. The budget itself has the opportunity to at least provide complete clarity for tax and reporting of these transactions. Based on the nature of transactions where crypto is involved in commercial transactions, appropriate GST as per the underlying GST on goods and services involved can be levied, however where it is an investment and trade-related to investment appropriate long term or short term capital tax can be levied in line with other investment transactions. Further there needs to be provision for capturing profits from trading transactions as business income wherever relevant. In case transactions involve a party from beyond the Indian geography appropriate reporting to RBI under FEMA can be done similar to investment under LRS as well.
Ashish Singhal, Co-Chair of BACC & Founder and CEO, CoinSwitch
The industry is waiting for an official communication on the proposed Crypto bill. We believe that regulatory clarity will bring clarity and encourage more Indians to start their Crypto investing journey. We are hopeful that the regulatory framework for crypto-asset investing would focus on four main areas:
- Crypto classification: Crypto should be classified as an asset. It is similarly regulated in many other countries, and almost all use cases of crypto are an investment and not payment.
- Regulatory framework: There should be a proper framework for the movement of funds.
- Standard KYC: The industry needs rigorous KYC (know your customer) procedures.
- Regulator: A proper reporting structure must be put in place.
Vikas Ahuja, BACC member and CEO, CrossTower India.
As we are now expecting the crypto bill to be introduced in the Budget session of Parliament, we believe that it will certainly bring more clarity regarding the regulatory obscurity. Separately, the government is mulling to bring cryptocurrencies under the tax net, starting from the 2022-23 Budget session. Furthermore, government officials are considering crafting a cryptocurrency framework with a view to establishing global standards and recognising the value of digital assets. We believe this is a positive approach as cryptocurrency is an emerging asset.
In the upcoming budget, we expect the government to consider levying TDS/TCS on the sale and purchase of cryptocurrencies. This can be a turning point for the crypto industry. We anticipate the government will be considering amending income tax laws to tax cryptocurrencies – expected to be imposed above a certain threshold, and such transactions can be brought into the ambit of specified transactions for purposes of income tax reporting.
Tarusha Mittal, BACC member & and COO and Co-Founder, UniFarm
The financial year 2021-2022 had been quite an eventful year for the blockchain and crypto industry, especially in terms of regulating the industry. I see 2022-2023 would be even more crucial for the industry as we foresee more clarity in terms of regulation as well as taxation from the Government. We request our Honourable Finance Minister Ms. Nirmala Sitaraman to bring more stability to the industry with the upcoming Union Budget.
Manoj Dalmia, Founder and Director, Proassetz Exchange
There has been a recent buzz around the development of a bill detailing the regulation of cryptos. As per our thoughts the classification and intent of taxing the earnings from crypto at a specified rate on trading might get approved in the upcoming Budget, investors had been paying taxes under other sources or classifying it as capital gains already.
It is clear that Crypto won’t be used as legal tender, but as per current scenario it is somehow clear that it might be allowed to use as an Asset, investment or tradable commodity. The government may plan on bringing permissions and licensing of only those crypto assets and exchanges in India that have been approved by the authorities to be listed.
Pratik Gauri, Co-founder & CEO, 5ire
We were hoping that the Budget session will witness the crypto bill being tabled at the Indian Parliament, however, the government’s decision to invest time in developing a deeper understanding of the sector is a positive move. Given the traction crypto has seen in India over the last year, this year’s Union Budget should address the taxation and trading issues of crypto. I think the Indian government is already taking multiple measures to tackle regulation and taxation on crypto markets.
Rashmi Deshpande, Partner, Khaitan & Co
India is yet to introduce a bill clarifying if crypto assets will be banned or regulated. In absence of such a bill, any stand on taxation policy may not be introduced. However, if the budget includes clarification on applicability of taxes, it will give a clear insight into the treatment of crypto assets expected in the specific legislation.
Shivam Thakral, CEO, BuyUcoin
We expect the government to define clear tax guidelines for the booming crypto industry in India. The clarity on taxation will not only help in building investor confidence but also enable crypto exchanges to contribute to the country’s economy. TDS/TCS on sale and purchase of crypto assets will also help in accurate reporting of crypto transactions to tax authorities. We are looking for a business-friendly regulatory environment within which we can operate without any fear and investors can trade with confidence.
Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co
To provide clarity on the taxation of cryptocurrency earnings, as currently there is no specific provision in the Indian tax laws for cryptocurrency taxation. Clarity is inter-alia needed on the taxations of income, disclosure requirements and TDS/TCS obligations on crypto-transactions.
Bhagban Behera, CEO and Co-Founder of Defy
We are hopeful that a positive step towards regulatory clarity is taken in the upcoming Budget session. We expect a bill towards crypto to be presented in the session but are aware that it may take longer given that the subject is complex and has multiple legs. However, we hope the government takes steps to minimally address consumer concerns like how should consumers wiew crypto gains and the taxation that follows.
Amit Nayak, CEO and Co-founder of Sahicoin
The crypto industry has withnessed unparalleled growth in India, and the country is currentlypositioned to achieve global leadership if we ride the wave.. Being the youngest nation with huge startup projects growth, India is likely to emerge as a big player in the crypto market. We belive and expect the governmen to take a progressive stance in the Budget and help put in place a framework for large-scale adoption, security and responsible investing.
Gaurav Dahake, CEO & Founder Bitbins
While the government is in th eprocess of coming up with regulation for the cryptocrrency industry, from the upcoing union budget, we expect clarity regarding how earnings from the crypto investments can be showcased during income tax filing. While there is a great deal of speculation in terms of taxation policies on the crypto industry, some clarity on that front would help the industry and investors alike. It would also help shape India’s crypto industry formally in the upcoming financial year.
Paras Nath, Partner, Tax & Regulatory Services, T R Chadha & Co LLP
Since Indian investors are very aggressive in investment and trading in cryptos, it’s high time now that Government should specify for the taxability of the transactions in cryptos by specific provisions, both in Income tax and GST, to give clarity on the subject and to avoid unwarranted litigation in future due to transactions being done by adopting different stands.
Himanshu Goel, Partner, Indirect Tax, T R Chadha & Co. LLP
Clarity is anticipated in the upcoming budget for cryptocurrency industry. Implication in terms of revenue to the government would be directly dependent on the classification of ‘cryptocurrency’ that government would notify. Classifying it as a commodity, service, security or merely money as a mode of consideration would have varied implications on the concerned sector. Conscious and timely take on taxation provisions of the government can regulate this sector, relieving them from the uncertainty of proceedings already on radar of GST and DGGI authorities. Bringing in clarity, which would result in ease of business, would be really welcoming for the industry.
Hoping the budget would bring along a win-win model, considering not only GST liability on outwards side but also the associated eligibility and reversal provisions for seamless flow of Input Tax Credit.
Aakanksha Goel, Direct Tax Partner, T R Chadha & Co LLP
The concept of cryptocurrencies being quite new to the Indian market, the Government is yet to come with concrete provisions on the taxation of Crypto Currency under Income tax act or under GST Act. The levy of tax on crypto currencies cannot be ruled out because the Indian income tax laws have always sought to tax income received irrespective of the form in which it is received.
With the upcoming Budget, 2022, some regulation to tax the crypto currencies may be expected in view of the fact that the Crypto trading platforms are witnessing a substantial jump in volumes and as on date there are no specific provisions to tax income generated from crypto currencies under various scenarios, i.e., mining, trading etc.