One of the crucial decisions in the union budget is the taxation of digital assets called Cryptocurrency. It was decided that there would be a 30 percent tax on profit and a 1 percent tax in TDS. But there is a lot of misinformation spreading. Some of them are confused about whether crypto became legal or not after the budget. In this article, we will cover all the things discussed and told by official sources.
There is no direct mention of cryptocurrency in the budget reading ceremony or post-budget media interactions. Instead, she used the term ‘digital assets”. So, you can’t tell that the government is officially legalizing crypto. Some things at present are taxed but not legalized. But the way the government wants to deal with crypto suggests that they cannot ban every cryptocurrency. They want to get high tax from this.
Proposal of cryptocurrency in Budget
On the day before the budget, the Principal economic advisor of India said that the government wants to take a balanced view on crypto. Our finance minister Nirmala Sitharaman also said they are noticing phenomenal increases in transactions in virtual currencies. So, they want to make a specific tax regime for these transactions. Thus, they propose a 30 percent tax in profit gain in these assets and a 1 percent transfer fee in any transactions. They estimated that Indian citizens put almost 45000 crore rupees in crypto assets.
The government will also introduce digital currency in these financial services, which will be based on blockchain technology. Cryptocurrencies have also functioned in the same technology.
How will this tax work for the cryptocurrency?
We have already been told that the government is proposing a flat 30 percent tax on profit from crypto assets. At the same time, you will have to pay 1 percent TDS. TDS generally means tax at source. So, whenever you convert your one type of cryptocurrency into another kind of cryptocurrency or cryptocurrency to fiat currency, you will have to pay a 1 percent transaction fee. It will be applied even if you give your crypto to someone else’s account.
Understand cryptocurrency via a simple example
Let us simplify this by giving an example. Let’s say you have a bitcoin in your wallet, and Bitcoin costs 1000 rupees which you buy in 900 rupees. That means you have 100 rupees in profit.
If You want to make it in fiat currency, you have to pay 1 percent TDS when you transfer. It means you have to pay 10 rupees as a transaction fee. After that, you will have to give 30 rupees more as tax. It means you will get 960 rupees in your bank account at last.
If you want to send that bitcoin to your friend, your friend will have to give 1 percent TDS, and when he converts it into fiat currency, he will have to provide a 30 percent profit gain in tax.
If you lost money in cryptocurrency, you don’t have to pay the 30 percent tax, but you can’t show that to deduction in other profits.
Now I hope you are clear about most of the doubts about the taxation part of digital assets.
RBI standpoint on cryptocurrency
RBI already told the government to complete a ban on cryptocurrency as they fear that these currencies will harm the macroeconomic stability of the economy. It is natural to expect that the institution that controls the money supply will fear losing control of currencies. They are working on their pilot project in which CBDC will be launched. They hope their central bank digital currency built in the same technology will dismiss the need for private cryptocurrencies.
This CBDC will be a virtual form of fiat currency that RBI will issue. It means this can be used the same as currency. It is just in a different form. More likely, it will act as a stable coin.
You may think that we already use various wallets like Paytm or Amazon pay. But this is different. This digital rupee will have its number, and it can only operate via the digital form.
There are still many doubts about this which the opposition parties already question. They are asking how government can make cryptocurrency legal without bringing cryptocurrency bills. There are also questions about the regulator authority and the regulation of crypto exchanges.
Crypto traders are questioning the high taxation while experts say that it was done to make common people disinterested in cryptocurrencies.
Though there are many questions unanswered by Finance minister, it is surely an excellent step to accept cryptocurrencies as assets. This will stop the rumor of banning cryptocurrencies which happen now and then by various media agencies. We have to look forward to the finance ministry updating the situation.