Budget 2022: How cryptocurrencies can be taxed in India

The most-awaited announcements in Budget 2022 are around cryptocurrencies, with India having the highest number of crypto owners from around the world. Experts believe that the way forward is for India to introduce a regime where cryptocurrencies are taxed.

Budget 2022 How India can bring cryptocurrencies under the tax ambit

The world of cryptocurrencies is fast expanding. As of January 2022, over 8,000 cryptocurrencies are in circulation in the market. Now, while some governments have shown more tolerance toward cryptos, India has its reservations. Also, Bitcoin was the first digital currency to be introduced in 2009. Yet, more than a decade later, the Indian government has not given a legal tender status to digital assets. Besides, the cryptocurrency bill, which was to be introduced in the winter session of Parliament, has been delayed. Here, reports suggest the government wants to hold more discussions on the regulatory framework. Moreover, it wants to wait until the Reserve Bank of India launches its digital currency.

Related: What are the different types of cryptocurrencies?

But Union Budget 2022 is around the corner -- February 1, 2022 -- and the Indian crypto-investing community is expecting that it be classified as an asset and regulated. Yes, a lot is at stake for those betting on cryptos. As per reports, the investments in digital cash by Indians will reach over $240 million by the year 2030. Here's what investors expect:  

1) Bring under capital assets

A cryptocurrency that a taxpayer buys for investment purposes could come under capital assets, keeping in mind Section 2(14) of the Income Tax Act, 1961. As a result, any gains from a transfer of a cryptocurrency become taxable as capital gains. That said, for taxpayers regularly dealing in cybercash in substantial amounts, income arising from crypto-assets should be taxable as business income.

Also Read: Should India ban or regulate Cryptocurrencies?

2) Introduce TDS/TCS Laws

Through the "Tax deducted at source" (TDS) or "Tax Collected at Source" (TCS)  provisions, the government ensures the regular flow of income. As such, the government collects tax revenue from the source. Here, the recommendation is to introduce new TDS and TCS provisions for the sale and purchase of cryptos. Additionally, the cryptocurrency exchanges that facilitate the transactions of digital currencies must be liable to collect tax at the source. Nonetheless, the government should exempt small investors from such crypto-related taxation.

Also Read: How to Invest in Cryptocurrencies?

3) Make SFT Reporting mandatory 

The Statement of Financial Transaction (SFT) legislation requires specified entities to report their financial transactions to the Income Tax Department. Additionally, the department operates the new Annual Information Statement (AIS) on its compliance portal. This website contains details about the various financial transactions of a taxpayer. It is accessible online; all you need to do is log into the IT department's e-filing portal.  

Further, the sale and purchase of cryptocurrencies must be reported in the Statement of Financial Transaction. Then, this would be similar to how trading companies report the sale and purchase of shares and units of mutual funds.

4) Steep tax rate

Higher tax rates for gains from digital cash is another recommendation. Here, tax slabs within the 30% range apply to gains arising from puzzles, lottery winnings, and game shows. Likewise, for cryptocurrency markets, tax slabs within the same range are advisable.

5) Do not allow losses to be set-off against other income sources 

The cryptocurrency market is highly volatile. Hence, the government shouldn't permit adjusting losses arising from the sale of digital money against other income. More so, it must not allow the carrying-forward of losses from cryptocurrency transactions to be set off against future income from cryptos.

The upcoming Budget 2022 session is likely to give us an insight into the Indian government's stance on crypto markets. Even so, some investors are paying capital gains for income arising from the sale of virtual cash. In addition, due to the uncertainty of virtual currency markets, investors must dabble in cryptocurrencies cautiously. So, start by investing in cryptocurrencies in small amounts to test the waters before making the big plunge.

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