Union Budget 2023: What Awaits the Crypto Industry after 30% Tax Implications?

Introduction 

Taking back a few steps, to the Union Budget of 2022, where the Indian Government took the steps which the crypto experts had been looking forward to. Going forward, February 1, 2022 will be remembered with much adoration by the crypto ecosystem because moving past mulling a ban on crypto in 2021, the crypto asset space made it to the Union Budget. This step and inclusion of the crypto asset within the laws gave ways to expectations that saved the dreams of millions of crypto believers and investors. India took a step towards central bank digital currency (CBDC) and had commented on introducing Digital Rupee. This step was taken to boost the digital economy of the largest economy in the world.

So, in short, the Union Budget 2022 brought crypto assets, referred to as ‘virtual digital asset’, as a taxable entity. Apart from that, they have also been stated to be put under TDS, as have any other assets in the finance sector. With the Union Budget 2023 almost here, the Indian investors are looking forward to certain talking points. Moreover, following the 30% fixed tax rate that had been imposed on all income generated via crypto trading in Budget 2022, crypto experts have certain expectations this time from Finance Minister Nirmala Sitharaman’s Union Budget 2023 on the rate and the 1% TDS on the purchase and sell of crypto tokens.

Read More: What are Virtual Digital Assets?

Is Bitcoin legal in India?

As a medium of payment, Bitcoin or any other crypto assets has neither been authorized nor have they been regulated by any central authority in India. If we take a closer look, no set rules, regulations or guidelines have been laid down for resolving any issues that may arise while dealing with Bitcoins. Hence, transactions with Bitcoins come with their own set of risks; which consists of the basic volatilities of asset investments.

Taking into consideration all the pointers that has been given regarding this, one cannot conclude that Bitcoins are illegal. Furthermore, there has been no ban on bitcoins in India. According to the Cleartax blog, the Supreme Court of India stated in its ruling on February 25, 2019 that the Government required to come up with crypto regulation policies. The matter had been adjourned in the hearing on March 29, 2019 and has been rescheduled for hearing in the second week of July 2019. More on what we know about Crypto Tax in India so far below.

Crypto Tax in India: What we have know so far

Before diving into the tax pointers, let’s take a quick look at what the Government stated as virtual digital assets.

What are Virtual Digital Assets?

Digital assets which are not physical or tangible are classified as Virtual Digital Assets. In layman’s terms, it basically means cryptos, DeFi (decentralised finance) and non-fungible tokens (NFTs). Prima facie, excludes digital gold, central bank digital currency (CBDC) or any other traditional digital assets, and hence aimed at specifically taxing cryptos.

Crypto Tax In TDS In India

Introduced in the Finance Bill of 2022, TDS for Virtual Digital Assets (VDA), as called 194S in the Income-Tax Act of 1961 – announced the levying of 1% TDS on any consideration paid for the transfer of Virtual Digital Assets. Since the implementation of the 1% TDS or Tax Deducted at Source, for crypto transactions taking place within the country and here’s a refresher for you.

According to the revised Income Tax Regulations, the 1% TDS is applicable on all sell transactions of the crypto assets. This will be effective for 1 July, 2022. However, please note that the TDS will be deducted on the final sale amount and not just on the profits. For TDS, it doesn’t matter if you earn a profit or book a loss on your trade. It will be deducted, no matter what. The tax will be levied only on crypto sales. Any deposits in crypto or INR will not be taxed. If a crypto asset is sold in lieu of crypto then 1% TDS will be levied on the equivalent rate of the asset. For example, if you sell 100 UDST at 89 INR per token. 1% TDS will be levied on 8900 INR  which amounts to 89 INR.

To put it in a nutshell, the pointers stated by our Finance Minister in the crypto tax session during the Union Budget Session 2022 are as follows that any crypto investor should keep in mind:

1. Income from the transfer of virtual digital assets such as crypto and NFTs will be taxed at 30% at the end of each financial year.
2. No deduction, except the cost of acquisition, will be allowed while reporting income from the transfer of digital assets.
3. Loss from digital assets cannot be set off against any other income.
4. The gifting of digital assets will attract tax in the hands of the receiver. Losses incurred from one virtual digital currency cannot be set off against income from another digital currency. 1% TDS point should also be mentioned in this list of pointers as it was announced in Budget 2022.

As per Section 206AB of the Income-Tax Act, 1961:

1. If any user has not filed their Income Tax Return in the last two years and the amount of TDS is ₹50,000 or more in each of these two previous years, then the tax (TDS) to be deducted for Crypto related transactions will be at 5%.
2. If an order is placed before 1st July 2022, but the trade is executed on or after 1st July 2022, TDS provisions will apply.

Source: Guide To Crypto Tax in India

Budget 2023 expectations for crypto market

• Guided Legislation of crypto: 

So far the crypto regulations or the partial policies that have been placed are a little out of focus on the tentative future. Crypto enthusiasts are looking forward to a much more detailed list of ways the government is going to proceed with the new asset class that has gained such a massive attention. India being a huge Web3 market; consisting of about 11% of the world’s Web3 talent, a guided legislation will push for a much more structured way of things.

• Clarity on the regulations of crypto: 

Crypto as an asset class do not have set regulations in place other than the 30% tax that has been levied on the profits made via any crypto investments, since 2022. Along with that any buy or sell of crypto assets are also liable to 1% TDS. Besides the taxes, this ‘virtual digital asset’ segments are yet to get a set of rules that covers all sorts of transaction. Given the freedom that blockchain presents within the crypto space, it involves a lot more dedicated transparency in the way of workings for investors to make use of the full potential that crypto assets presents.

• Lower Crypto tax: 

Ever since the 1% TDS on crypto has been declared to the investors during the Union Budget 2022, the crypto experts have stated their thoughts on the rate being pretty high, specifically pointing out the volatility aspect of the space. With many a discussions, proposals of TDS to be reduced to 0.1% has come up. With the Union Budget 2023 set to take place next month, crypto investors are looking at Finance Minister Nirmala Sitharaman to point out their thoughts on the same. According to a report by Live Mint, the continuation of 1% TDS would imply that, from a broader macroeconomic standpoint, the amount of capital invested in Crypto assets can incur a constant decrease in trade, which will in turn be reducing the category’s overall profits. The continuation of this will only serve to discourage investors from taking part in Indian exchanges that are TDS compliant in favour of foreign exchanges that do not deduct TDS.

The Way Forward

In a crisp description, crypto is an asset class and an investment product. Saying so, it will be a disservice to individuals who have acquired unique skills to navigate though this volatile market if the space is compared to only some speculative services. Holding the potential to cater towards a variety of things, these digital virtual assets should be taxed similar to the other asset classes. Other than majority of the audience being not fully aware of the crypto ecosystem, one other thing is plaguing the crypto industry. That is the lawmakers’ refusal to allow the offsetting of losses incurred while trading crypto assets. As a way forward for giving the crypto industry a chance to grow, it is imperative to understand that it works similar to any other stock trading/business. The crypto market also works with a bull-bear cycle. The inability of a trader to offset losses incurred during bad trades increases the tax burden on investors. Being similar to other asset classes, when the government allows share investors to carry forward their losses; crypto investors should also get the similar treatment.

Read More: Bitcoin Price Prediction 2023

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