Finally, a positive attitude toward cryptocurrencies and blockchain technology is being adopted in India. Giving investors much needed relief, crypto has been legalized. On February 1, 2022, historical changes were made and introduced in the budget of India for the year 2022, which will be remembered in crypto history for a long time. After a long period of deliberation by the Indian government, India has finally decided to legalize the cryptocurrency industry. To a significant measure, the government’s progressive stance has provided justification for the company’s existence and the administration is no longer considering a ban on acquiring or investing in cryptocurrency.
Cryptocurrencies, according to the Finance Minister, are a different asset class that comes under the heading of “virtual digital assets”, standing by the assertion that cryptocurrencies are not a form or substitute of money. The Reserve Bank of India (RBI) is developing a digital currency that will be maintained by the central bank. It’s good news that India will soon introduce a Digital Rupee that is driven by blockchain technology. Achieving this goal will pave the way for cryptocurrency acceptance while also positioning India at the forefront of web 3.0 innovation and usage. For the time being, the vast majority of Indian cryptocurrency investors have disclosed their crypto-related income on their personal tax returns. Cryptocurrencies like Bitcoin, Ethereum (Ethereum to INR), Tether, Litecoin (LTC to INR) etc, have been accepted and invested in even in the Indian Market. It will become easier to understand taxes and government permission with the advent of sections 115BBH (Tax on income from virtual digital assets) and 194S (Payment on transfer of a virtual digital asset). To put it another way:
- Section 115 BBH: Effective in the Financial Year (FY) 2022-23, any income derived from the transfer of virtual digital assets such as Bitcoin and NFT (sell consideration less cost of acquisition) would be subject to flat taxation of 30 percent beginning in fiscal year (FY) 2022-23.
Section 194S: As of the first day of July in 2022, every person (purchaser) who pays any sum as consideration (in cash or in kind) for the transfer of a virtual digital asset would be required to subtract 1 percent tax and deposit the resulting tax amount with the government (subject to conditions). The operational ramifications of this clause have not yet been clarified, and more clarification is expected soon.
Section 56: The definition of a “virtual digital asset” has been added to Section 56 of the Income Tax Act. That implies that if an individual gets a virtual digital asset such as crypto or NFT as a gift, it will be taxed in the recipient’s hands under the heading “Income from other sources.” The 50,000 cap that applies to gifts will apply here as well.
As it is, this is a succinct reading of the law; but, the government is anticipated to provide more clarification in the near future. As a result of these changes, the cryptocurrency markets have responded favorably, with a large increase in the number of people who are buying cryptocurrency.
Also noteworthy is the fact that the Finance Minister has stated that the goal of this budget for 2022 is to create work possibilities for young people. Our industry, together with the government’s acknowledgement of the sector, gives us confidence in our ability to assert that the crypto sector has enormous potential to provide employment opportunities while also contributing to India’s $5 Trillion GDP ambition. Cryptocurrency has the potential to significantly increase our GDP.
Another point to consider is that, as of today, the vast majority of individuals, particularly corporations, who had previously refrained from participating in cryptocurrency due to the uncertainty will now be allowed to do so. Although, despite the positive changes taking place there is speculation that the market will see some short term declines in the near future. However, this is not a point of concern as, from now on, it can be expected that a number of experienced and serious investors will step forward and make decisions based on the long term. The legal adoption of this rising asset class in India will prove to be highly beneficial after the Budget declaration takes note of the current scenario.
While this is only the beginning of the process, it is definitely not the conclusion. A slew of beneficial developments are probable and are on the horizon from this point forward, which makes it a good time to start building a crypto portfolio while keeping the impending taxation clauses in mind. However, before investing, it is recommended that one gains proper knowledge and then makes any financial decisions.