Flat 30% Cryptocurrency Tax Rate: Why Crypto Investors Should be Happy

Cryptocurrency Tax Budget 2022: There is something in the Budget crypto investors should be happy about.

Flat 30% Cryptocurrency Tax Rate: Why Crypto Investors Should be Happy
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Budget 2022 30% Cryptocurrency Tax: Many cryptocurrency investors may have been disappointed today with the Budget 2022 announcement of flat 30% tax on income from cryptocurrencies or virtual digital assets. However, there is something from the Budget they should feel happy about. 

Provided with the two clear choices – either to ban crypto or collect tax on the income earned by investors – the Government has expectedly opted for the latter. In doing so, it has also made it apparent that all cryptocurrencies will not be BANNED in India. 

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According to Sharat Chandra, VP- Research and Strategy , EarthID, a self-sovereign Identity Management Platform, crypto enthusiasts weren’t caught off guard when the crypto tax was announced. This was expected.

As WazirX CEO Nischal Shetty said in his post-budget reaction: “It is interesting to note how our government is beginning to recognise crypto as an emerging asset class given how our FM was referring to it as virtual digital asset. The biggest development today, however, was a clarity on crypto taxation. This will add the much needed recognition to the crypto ecosystem of India. We also hope to this development removes any ambiguity for banks, and they can provide financial services to the crypto industry.”

Budget 2022 has cleared the air on crypto which will ultimately help the investors in making a rational choice while deciding to put their money in this risky asset class. 

What Finance Minister said in Budget Speech 

The Finance Minister noted the phenomenal increase in transactions in virtual digital assets. She said that the magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime. 

“I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent,” the FM announced. She further said that no deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of virtual digital asset cannot be set off against any other income. The Finance Minister also propose to provide for TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold. The Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.

Progressive move

Experts feel that the announcement of 30% tax on crypto income is a progressive move for the rapidly emerging crypto and blockchain industry in India.  

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“Prima facie, self-declaration of crypto ownership and tax filing is a progressive move that displays the government’s conviction in monitoring, validating, and regulating the evolution of crypto economy,” Gaurav Mehta, Founder, Catax, an online crypto auditing and taxation software, told FE Online. 

Impact on investors

According to Sharat Chandra, 30% tax on crypto may push some investors towards traditional assets but it won’t deter those who like the thrill of high-risk, high reward investments. 

“A 30 percent tax on digital assets would certainly disincentivize crypto investors to some extent and an exodus towards traditional financial assets(stocks, bonds, ETFs) cannot be ruled out. However, those who relish the thrill of high risk -high reward investing wouldn’t be deterred by high taxes,” Chandra told FE Online. 

Gaurav Mehta said that the 30% taxation will have little effect on small crypto investors because it is already comparable to regular taxes on short-term securities holdings. “Cryptocurrency is a high-risk investment, and its price swings significantly month to month. Small investors have limited savings that should be invested in safe assets, and the tax slab will serve as an additional caution,” he added. 

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