Finance Minister Nirmala Sitharaman recommended a 30 percent tax on “any revenue from the transfer of any virtual digital asset” and a 1% tax deduction at source (TDS) on transactions beyond a monetary threshold on Tuesday.
While the upside is limited in terms of revenue mobilization, the step is significant since it represents the government’s first legal acknowledgment of increasingly popular financial instruments and applications, such as cryptocurrencies and non-fungible tokens.
The application of TDS indicates a policy commitment to trace the monetary trail in a sector that has hitherto been exempt from regulatory oversight or tax collection.
“In recent years, virtual digital assets have increased in popularity, and the trade volume in such digital assets has expanded significantly.” In addition, a market is forming in which payment for the transfer of a virtual digital asset may be done using another virtual digital asset. As a result, a new system to allow for the taxation of such virtual digital assets has been suggested in the Bill,” according to the Finance Bill’s explanatory memorandum.
This even specifies “virtual digital asset” and covers non-fungible tokens as part of its scope.
The measure, however, should not be seen as the government legalizing or recognizing virtual and cryptocurrency, according to Sitharaman. Furthermore, she stated that all kinds of crypto or virtual assets cannot be classified as money because any form of fiat can only be issued by the relevant authorities. “It can only be currency if they issue something, even if it is digital.” Otherwise, in the realm of crypto, people are generating a wide range of assets utilizing digital and distributed ledger technologies. “Not all of them are currencies,” she said.
According to her, the government has recommended that the Reserve Bank of India establish a digital currency in the coming fiscal year, which would be “riveted in or based on” a particular value of gold.
However, I have proposed the tax since there is a lot of buying, selling, and dealing that results in some form of profit, and it is a sovereign prerogative to tax such transactions and profit-making,” she added.
Aside from the basic 30% tax rate on any revenue from the transfer of any virtual digital asset, Sitharaman suggested a 1% TDS on such consideration beyond a monetary level in the Budget. Additionally, beneficiaries of virtual digital assets as presented will be subject to taxation.
“With the exception of the cost of purchase, no deduction in respect of any expenditure or allowance will be permitted in computing such income.” Furthermore, any loss incurred as a result of the transfer of virtual digital assets cannot be offset against any other revenue,” according to budget papers.
Around Rs, 45,000 crores have been invested in private cryptocurrencies by Indian investors. The Reserve Bank of India has been a vocal opponent of private cryptocurrencies, claiming that they pose a severe threat to macroeconomic and financial stability.
Starting in the next financial year, the government has suggested that the RBI’s digital rupee, also known as the Central Bank Digital Currency (CBDC), be issued utilizing blockchain technology.
The RBI’s Central Board has examined a number of issues, including CBDC’s position. The board was informed by RBI officials that a pilot project for the implementation of CBDC will be initiated soon.