The Emergence of a New Asset Class

Whether this would help investors in making a rational choice while deciding whether to put their money in this risky asset class remains to be seen.

Published: 07th February 2022 07:57 AM  |   Last Updated: 09th February 2022 04:58 PM   |  A+A-

Image used for representationla purpose only ( File Photo)

Image used for representationla purpose only ( File Photo)

Express News Service

The penultimate paragraph of my pre-Budget column was, “To cut a long story short, middle-class investors would do well to recognise that the Budget always was and will remain not just a financial but also a socio-political statement that attempts to balance the needs of the economy with maximum political mileage. The middle class is more often than not, the collateral damage in this exercise.” 

Now, the Budget has been announced and since I am not in the business of rating Budgets or giving it marks out of ten, I will restrict myself instead, in this column, to looking at what caught my attention while reading up on the Union Budget 2022. 

After blowing hot and cold on whether or not to ban Crypto-currencies (Cryptos), which seem to have taken the fancy of many Indians, and particularly the youth, the Finance Ministry was faced with the prospect of losing out on tax revenues if it banned Cryptos, chose instead to be practical and give it a rather emphatic nod instead, via the latest Union Budget 2022. 

In lieu of this emphatic nod, the Finance Minister has also announced a flat 30% tax on gains from trading in cryptos. The tone of its taxation is punitive with no expenses other than purchase cost being allowed as deductible and without any facility to carry forward losses. In addition to this, 1% tax will be cut at source on such gains to ensure a tax trial. 

ALSO READ: TDS on crypto transaction is like Securities Transaction Tax: Govt

None of these measures, however, might dampen the spirits of crypto traders who will view it more as granting of full legitimacy after a period of confusion, following signals of a ban on the trading of cryptocurrencies in the country. As for the 1% tax cut at source, it can also be interpreted to imply that regular banking channels too will open up for crypto traders.     

Interestingly, the Budget has chosen to refer to cryptos as ‘Virtual Digital Assets’, perhaps to avoid usage of the currencies suffix and also to provide a distinct identity to the Digital Currency proposed to be launched by the central bank.

ALSO READ: Union Budget 2022: Trading in cryptocurrencies may get trickier

For the record, gifting of such ‘Virtual Digital Assets’, will lead to taxation in the hands of the recipient. To conclude, Cryptos, which were hitherto frowned upon by Governmental authorities, have now ‘virtually’ been accorded the status of an asset class. 

Whether this would help investors in making a rational choice while deciding whether to put their money in this risky asset class remains to be seen. The weekly gyrations in the prices of most cryptos, make it highly risky for small investors. The absence of a Regulator multiplies that risk. Nonetheless, it is now an asset class and better-informed investors may participate therein, and hence, things can only get better for all concerned, not least of all, the Exchequer. The free market rule of ‘Caveat Emptor’ though will apply here too and at full throttle.

(The author is the Head of LKW-India)


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