On February 1, the Indian government released the budget proposal for its financial year 2022.
What caught everybody’s eyes was the announcements regarding cryptocurrencies and digital currency.
This year, the Indian government revealed its plans to release a new regulatory framework for cryptocurrencies. This created excitement about the positive effects the budget would have on cryptocurrency in India and beyond.
Before jumping onto the impact of the budget announcements, let’s take a look at what changes are introduced in the system.
Budget 2022 – New crypto announcements
Here is the gist of the announcements regarding “tax treatment for transactions in virtual assets” made by Nirmala Sitharaman, Finance Minister of India during the Budget proposal:
- Income from virtual assets will be taxed at a rate of flat 30%. Loss from the transfer of virtual digital assets cannot be set off against any other income.
- Gifting virtual digital assets will be taxed in the hands of the recipient.
- 1% TDS (tax deducted at source) will be deducted on transactions regarding virtual assets.
- Virtual assets are defined as any instrument, generated through cryptographic means providing a digital representation and includes all cryptocurrencies such as Bitcoin, Ethereum, etc.
- India also intends to introduce a digital rupee, a central bank digital currency (CBDC) within the financial year.
Does this mean that cryptocurrency is legal in India?
Yes and no. The Finance Minister stated that the Indian government does not recognize cryptocurrencies as a legal tender in India.
But she stunned the Indian crypto industry with her announcement that cryptocurrencies would be considered taxable assets. This was a pleasant surprise for many crypto enthusiasts in India considering that crypto ban rumors have spread like wildfire through the turbulent crypto market.
No doubt, 30% is highly taxing and can scare away investors to step into the crypto world. However, the happy news is not the rate of tax but the fact that crypto assets have finally got recognition in India.
Does this impact crypto investors?
Post budget announcements, rather than panic amongst investors and crypto enthusiasts, they were seen breathing a sigh of relief.
A majority of investors feel this is the first step towards legitimizing cryptocurrencies, which are largely unregulated in India. With the rising adoption of Cryptocurrency in India, investors would be able to diversify their portfolios by investing in cryptocurrencies such as Bitcoin and Ethereum.
Whereas others are of the opinion that the Indian government will not legalize crypto as a legal tender. Apart from this, heavy and stringent taxation may impact trading volumes.
Short-term Investors may begin to see more value in buying and holding for the longer term rather than selling because it will attract taxes. Moreover, there is no minimum limit to buy bitcoin in India. Investors can get started with as low as INR 100.
What is the future of crypto in India?
While there have been differing opinions on whether this announcement helps or hinders cryptocurrency adoption in India, it seems to be a much-needed move to bolster the ecosystem and align with international trends.
The truth of the matter is the Indian government has treated cryptocurrency as a grey area for a long time. But with the latest Budget, there seems to be a little shift in the establishment’s attitude towards the mysterious and volatile asset class.
Though the Indian government still does not recognize Cryptocurrencies such as Bitcoin as legal tender, the government’s decision to treat virtual assets as taxable assets provides the much-needed assurance that crypto has got a backdoor entry in India.
Crypto has always been about two things, the first one is money and the second is uncertainty. In 2010, bitcoin was used by one person to buy a pizza.
Years after that, it saw billions of dollars in value getting moved around the world.
When every cryptocurrency player in India is praying for a boom, instead of a big bang, it’s time to see if destiny has brought the much-awaited ‘light at the end of the tunnel‘ — or some black clouds are about to become bigger and bring more chaos.