In a significant step in recognizing cryptocurrencies, India on Tuesday announced a 30% tax on any income from the transfer of any digital asset, including cryptocurrencies and NFTs. The country’s finance minister Nirmala Sitharaman also said that there will be a 1% tax deduction at source (TDS). In addition, anyone who receives digital assets as gifts will have to pay the tax.
While the digital asset tax limits revenue mobilisation, this is the first time India has formally recognised cryptocurrencies and NFTs. India had proposed a cryptocurrency Bill late last year, which sought to ban all “private cryptocurrencies”. In light of this, the digital assets tax has brought greater clarity.
More on India’s digital asset tax
Apart from a 30% tax on income and 1% TDS, Sitharaman also said that the government will not make any allowances while calculating the income.
“No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition,” Sitharaman said. “Further, loss from transfer of digital asset cannot be set off against any other income.”
When asked about taxing digital assets without clarity on regulation, the Indian minister said, “We have circulated a paper, inputs are coming in, public stakeholders are coming in so regulation goes through that process.” She further said, “I don’t wait till regulation comes into place taxing people who are earning profits. Can I?”
Furthermore, Sitharaman announced that the Reserve Bank of India (RBI) will issue the digital rupee, or the Central Bank Digital Currency (CBDC), in the next financial year. This, she said, will “give a big boost to the digital economy”. It will also offer a “more efficient and cheaper currency management system.”
How have the stakeholders reacted?
“The biggest development today, however, was a clarity on crypto taxation,” said Nischal Shetty, chief executive of WazirX. “By bringing in taxation, the government legitimises the industry to a large extent. The majority of people, especially corporates, who have been sitting on the sidelines because of uncertainties will now be able to participate in crypto.”
On similar lines, Sumit Gupta, co-founder and CEO of CoinDCX said taxing crypto transfers is a “step in the right direction.” On the other hand, tech investor Puneet Kumar said he is “excited” by the move. He further noted that it will give India “a chance to become the Web3 innovation hub in the coming decade.”
However, some experts have raised concerns that India’s digital asset tax could deter retail investors.
“There might be movement in people liquidating their crypto portfolios and moving to the equity market. The 30% tax is too much,” a source at a major crypto exchange told CoinDesk.
Conversely, Shivam Thakral, CEO of BuyUcoin, said that the tax is “normal and not too high”. He added that someone earning a personal income of over 1.2 million are already in the 30% tax slab.