Following the tax proposals through the Union Budget 2022-23, the Indian government is now planning to issue comprehensive guidelines on various taxes for the crypto sector before July 1. Media reports suggest that the government has asked the Central Board of Direct Taxes (CBDT) to prepare the guidelines.
As of now, only the taxation policy as proposed in the annual budget is available and it provides for a 30% tax on income from transactions of virtual digital assets (VDA) and a 1% tax deduction at source (TDS) on virtually all transactions involving digital assets. Sources suggest that the government is not planning to offer any relief in tax rates. However, it may offer exemptions from crypto capital gains tax to certain industries such as healthcare.
“This is an evolving discussion. We would like to ensure that virtual digital assets include any and every product that is introduced due to technological innovation. We may also exempt certain products,” a media report quoted an unnamed Finance Ministry source as saying.
The government is also planning to introduce clarity on the taxation of digital asset gifts. As these assets become popular, more people are choosing cryptocurrencies and NFTs as gifts, particularly at festivals and weddings. Right now, digital assets as gifts may attract tax provisions that have not been famed with crypto in mind.
Some industry leaders had asked for the reduction of TDS but the government is reportedly unwilling to accept their demands. It believes the TDS is necessary to track crypto transactions that may be taxable. In absence of TDS with a very low threshold, traders may try to hide these transactions.
Although the Indian government has introduced taxes for digital assets businesses and is planning to launch its CBDC in the current financial year, there is no clarity on when the government will introduce laws to regulate crypto activities. Last week, a top Finance Ministry official said that a consultation paper on cryptocurrencies is fairy ready and will be released to invite suggestions and comments from the general public.
But Indian Finance Minister Nirmala Sitharaman has on several occasions said that the country will not rush to a decision and it will rather wait for a global consensus to emerge on how the challenges posed by these new technologies should be dealt with.
However, experts believe a lack of regulation can impede India’s CBDC plans as official digital currencies of various countries are envisaged to interact among themselves for international payments and remittances. Some of these CBDCs may also be interacting with stablecoins and cryptocurrencies. In this environment, remaining aloof for CBDC from cryptocurrencies doesn’t seem feasible. And, if it interacts with cryptocurrencies, it’s not possible without proper and exhaustive regulations, they think.
