In this fast-evolving world, we are always looking for new opportunities in the financial markets. This may include finding new investment routes and learning how they work. In recent times, we have seen a mushrooming rise in public curiosity and acceptance of cryptocurrency in India. With the peak of several cryptocurrency exchanges, the Indian crypto market experienced a growth of 641% from July 2020 to June 2021.
However, this rising growth has experienced a giant speed breaker after the budget session in 2022. The hefty tax implications imposed by the finance minister have put a big damper on investor interest. In this article, we will share how the recent amendments have impacted the crypto trading market of India. Let us start by understanding the definition of cryptocurrency.
What is cryptocurrency?
Cryptocurrency, also known as crypto, refers to the digital currency designed for exchange across the world through a computer network. This virtual currency has cryptography protection, making it difficult to duplicate or counterfeit. Crypto is a decentralized investment form, free from interruption by any governing body. Bitcoin, Ethereum, Cardano, and Litecoin are some examples of the cryptocurrencies available in the market.
Recent budget amendment related to cryptocurrency
In the most recent budget session presented by the finance minister, Nirmala Sitharaman included a proposal concerning the taxation of virtual digital assets. As per the budget, cryptocurrency trading will now attract a tax levy of 30% in India. Income derived from the transfer of any virtual digital assets will be taxed at a flat rate of thirty percent.
There will be no permissible deductions in the computation of tax liability other than the cost of acquisition. Any loss from such transfers is not allowed to be set off against any other income. In addition to that, transfers of crypto and other virtual assets will also attract TDS provisions at a 1% rate to help the government track transaction details. Any transfer of crypto in the form of a gift will become taxable in the hands of the receiver.
Impact of the latest tax amendments on the crypto market
Taxation on digital assets like cryptocurrency and non-fungible tokens has received mixed reactions from investors and financial experts. Some people are disappointed with crypto trading falling into a high tax bracket. On the other hand, many see this as a sign of the legalization of these assets in India. Here are the top five ways these tax implications have impacted the crypto market in India:
1. Making cryptocurrency inaccessible to the middle class
Due to the high tax rate levy on cryptocurrency, the government has made investments in crypto an accessible option for the middle class. Due to the high tax applicability, people from the middle class may shy away from crypto, as they tend to lie within the 10% or 20% tax slabs.
2. Forcing traders to face the consequences of a volatile market
There is a strict policy against set-off or carry-forward provisions for the losses incurred in trading cryptocurrency introduced in the latest budget session. It makes investors more vulnerable to any losses they might sustain, as they can’t set them off against other incomes, thereby forcing them to bear high losses.
3. Investors are focusing on long-term holdings
Since high tax rates will take a considerable share of the returns derived from the transfer of cryptocurrency trading, investors are looking to non-current trading. Unless the government introduces varied rates for long and short-term tax investments, investors are stuck holding their holdings for the long term.
4. Need for new and educational initiatives
After tax liability on cryptocurrency and other non-fungible tokens, there is a need for investor education. Investors need to be made aware of the tax implications, TDS, and gifting provisions related to them. For investors to make more informed trading decisions, they need proper knowledge about cryptocurrency, which is still lacking.
5. A hopeful step towards the legalization of cryptocurrency in India
Despite the unfavorable public reactions, there is also a reassurance factor from the taxing of cryptocurrency in India. The latest taxation implications have given investors hope that crypto will not be banned in India and will soon become legalized. This has caused a spike in new investments from hopeful investors.
Conclusion
We hope reading this article helped you understand the stance on cryptocurrency in India after the recent tax amendments on virtual digital assets in the country. The heavy taxation rate of 30%, in addition to the one percent tax deduction at the source, and without the legalization of these trading alternatives, has forced investors to reconsider their crypto investments. One can’t deny that the 2022 budget had a staggering impact on the crypto market in India.
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