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Crypto assets are subject to a tax in the budget.
The triple whammy of the Union Budget – 30% capital gains tax, 1% tax deductible at source (TDS), and the inability to offset or even carry forward losses – puts a dark shadow over this promising sector.
Of course, moving from a 10-year prison sentence and a Rs 25 crore punishment in the 2018 Bill to a regular tax system is a huge relief. So, while this acknowledgment is a positive thing in general, the way the taxes have been proposed suggests that the government has rushed into this decision. This could result in the loss of new prospects and industry participants in this arena, which global leaders like Jack Dorsey and Elon Musk are pursuing vigorously.
More importantly, any tax policy must be equitable to the country’s citizens and encourage them to report their assets accurately. Given the small number of taxpayers and the availability of good tax advisors, a flat rate of 30% may encourage people to find ways to circumvent these onerous tax regulations. Because most investors in the market have holdings of between Rs 5,000 and Rs 1 lakh, a tax rate of 10-15% would have been preferable. Few people put in more than that. A easy solution would have been to employ the existing tax slabs based on income levels.
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Implementation difficulties
For example, not all of the ideas in the Union Budget will go into effect on April 1, 2022. Some will begin on July 1, 2022, while others will begin in April 2023. Another major point is that acquisition costs have not been included for existing crypto miners or future business opportunities, such as ‘Nodes as a Service,’ which is a huge potential market for the industry. ‘Nodes as a service’ usually include an API key that can be used to write to and read from the blockchain. This is a significant omission because India is regarded as a global IT manufacturer due to its vast talent pool and infrastructure. It has the potential to become a “multi-billion dollar” market if properly regulated. We are currently at a fork in the road that could result in a tremendous opportunity loss, potentially changing the fate of its people and the country. Such tight standards and anomalies are a clear’red flag’ for global corporations and exchanges.
Another alarming detail is that any income received by a trust will be taxed at a rate of 30%. Not to mention that one of India’s largest crypto-led charity campaigns, focusing on Covid, raised hundreds of millions of dollars in a couple of weeks (cryptorelief.in). A 30% tax on philanthropy will also discourage it. What’s disappointing is that although start-ups are exempt from paying taxes, cryptocurrencies, which will be at the forefront of the Web 3.0 ecosystem, are severely taxed. To be honest, discouraging newcomers isn’t going to propel India to new heights. It will instead encourage them to leave for the advantage of other countries.
There’s a reason Facebook dubbed itself Meta (Metaverse – Web 3.0), and Jack Dorsey is developing Blue Sky, a new decentralised social media network. Dorsey also left Twitter to work on a cryptocurrency startup (Square). These forward-thinking entrepreneurs have identified the ecosystem’s potential and have taken the initial steps toward realising it. The crypto ecosystem in India should be governed with a more favourable tax and regulatory framework; we have a chance, and we must seize it.
Jobs and opportunity are being lost.
Consider the following: We received inquiries from one of the main crypto exchanges interested in India shortly before the Union Budget. Their ambitions appear to have been put on hold for the time being. And it’s not simply because of the taxation issue, which is already troublesome.
Because of the intricacy of cryptocurrencies, it appears that the government has taken the easy way out. However, because to its large population, India is a great potential market for cryptocurrency. However, compliance with the Goods and Services Tax (GST), TDS compliance, and a high tax rate make it appear exceedingly difficult for international entities and exchanges to set up shop in India and generate significant employment and direct investment. Around 10,000 young Indians are currently employed by Indian exchanges and crypto-focused enterprises. Furthermore, Indian coders are being offered a plethora of freelance possibilities from all over the world. Another round of brain drain from our country will result as a result of this.