Union Budget 2022: India is closely waiting for clarity on crypto laws
Over the last few years, India's cryptocurrency sector has grown at an exponential rate. There is currently no law in the country that supervises or regulates cryptocurrency trading. Buying, selling, or trading digital coins, as well as establishing a cryptocurrency exchange, are all legal in India.
Given the risks associated with cryptocurrency trading, there was speculation that a bill would be introduced in the Winter Session of parliament, which would either ban or regulate digital assets. That bill, however, was not introduced. The government is now likely to introduce the crypto bill in the Budget session, which starts on January 31 and ends on April 8.
If Indians are not barred from dealing in cryptocurrencies, the government may impose a tax on them. The government may contemplate levying TDS (tax deducted at source) and TCS (tax collected at source) on the sale and purchase of cryptocurrencies beyond a specific threshold. In case that happens, it will help the government know and track the investors.
Buying and selling cryptocurrency could be included under the ambit of reporting in the Statement of Financial Transactions (SFT) like trading companies usually report the sale and purchase of shares and mutual fund units.
Union Budget 2022: Given the risks associated with cryptocurrency trading, there was speculation that a bill would be introduced in the Winter Session of parliament
In case that happens, the tax authorities can use the statement to collect information on specific high-value transactions that a person carried out during the year. The individual is obliged to include details of specified financial transactions or any reportable account that they registered, recorded, or maintained during the year in the statement.
The government can introduce a higher tax rate for gains made by an individual or entity from cryptocurrency trading. The tax rate here can be 30 per cent, which is similar for gains made from a lottery, game shows, puzzles, etc. If that happens, those trading in cryptocurrencies would have to pay taxes from the income arising from the sale of the digital assets.
The bill may also allow the Securities and Exchange Board of India, or SEBI, to regulate cryptocurrencies as a capital market investment instrument. In this case, there will be more stability in terms of institutional regulation and when it comes to understanding digital assets better. Investors will be able to diversify their asset portfolios by treating them as an investment instrument.
The bill might also functionally categorise different cryptocurrency businesses - exchanges, wallet token issuers - and impose varying tax responsibilities on them. To put it another way, different stages of cryptocurrency operations will be taxed differently, from mining to trading to liquidation.
From the point of view of economic recovery, the Union Budget 2022 is very important. Developing and enabling a forward-thinking regulatory framework with respect to cryptocurrencies can play an important role in the process.