An unconvincing response: on crypto assets and regulation

One of the most important steps in the Union Budget’s taxation proposals for 2022-23 is the introduction of a taxation regime for virtual digital assets – developing expressions of cryptocurrencies, codes and non-fungible tokens. Finance Minister Nirmala Sitharaman Proposal to levy 30% tax on all profits arising out of transactions in such properties 1% tax to be deducted by buyers when trading in any virtual digital asset beyond a threshold, with applicable surcharges and cesses. While the tax on profits will be applicable from April 1, 2022, which will not prevent profits already booked before that date from tax liability, the officials said, with a view to creating a transaction trail for the tax authorities, the TDS provision, Will be effective from 1st July. While trading profits will be taxed, according to crypto industry players, at a higher rate than in other jurisdictions, no deduction will be allowed on account of loss from such trading or from any other capital loss. The only deduction allowed would be the cost of acquiring the property. The term ‘property’ is being expanded under the IT Act to include virtual digital assets so that such property received by way of gift is taxable, except when received from relatives. However, the taxation regime itself, Ms Sitharaman emphasized, does not legalize trading in these currently unregulated assets. A consultation process is underway, which will determine the legal status of such properties.

This provides some relief to the growing swarm of crypto investors. The government still may not consider them completely legal, yet the tax regime points to the difficult choice of a complete ban that was hinted at last year in the naming of a proposed crypto law, is off the table. Listed first for the monsoon session of Parliament, then in winter, that law is also off the agenda now. All this time, India’s youth, whom the prime minister was worried about, were being seduced by deceptive advertisements from crypto players, with no norms brought in to rein in such slaughter, and no regulatory oversight. Whether this case is different from collective investment and late regulated plantation schemes is a matter to be considered. Delay in arriving at a decision also prevents Indian start-ups and innovators from developing products and ideas that can be scaled up globally given the nature of these assets. In November, the government indicated a forward-looking approach to monitoring the crypto market. Now is the time to quickly match those words with a clear regulatory framework, not vague waffles and quacks.