Taxation of virtual currencies in India — What does it mean for cryptocurrency traders?

In February 2022, finance minister Nirmala Sitaraman announced that under the Union Budget 2022, income from digital currencies (including cryptocurrencies and NFTs) will be taxed at a rate of 30% from April 1 onwards. But before you break out the champagne, know this — this does not mean that these digital assets have been legalized.. yet. Sounds contradictory? Let us break it down for you.

According to the minister, cryptocurrencies have been included in a similar category as “speculative” income transactions, like lotteries or horse racing. So they are to be taxed at the same rate as the latter, i.e., 30%. She further clarified that losses incurred from digital currency transactions cannot be written off against other forms of income, and the only exclusion allowed will be the cost of acquisition of said virtual assets. Moreover, a gift of a digital asset will be taxed as well.

CBDC: Alternative to Cryptocurrency?

Central Bank Digital Currency, or CBDC, is the government’s proposed legal tender that aims to boost the economy, promote an efficient and inexpensive currency control system and create an environment of financial inclusivity. The digital rupee is issued by the RBI and is said to be the same as paper currency, except in an electronic form. The digital currency is also projected to surpass existing forms of currency by offering users multiple benefits including anonymity, liquidity, ease of usage, faster settlements, finality of transactions, and widespread integration.

Final Verdict?

The government has still not provided a clear picture of whether cryptocurrencies are legal tender (or whether they will be in the future). But this does not mean they are illegal, according to Finance Secretary T. V. Somanathan. The ultimate verdict on cryptocurrency’s legal status will be finalized after internal deliberations as well as detailed observation of how other countries and global markets deal with digital assets.

However, banning crypto is not in the cards as of now, as the central government wants to be clear on all adjacent aspects like costs of acquisition before deciding what type of regulations need to be put in place. So, if you’re an aspiring trader, this might be a good time for you to test the waters of the cryptocurrency stock market.