Sustain Crypto trade without tax evasion
Despite the Union Budget 2022 bringing cryptocurrencies under the direct tax net, their legal and regulatory status remains where they have always been—in the unregulated territory. On February 1, Finance Minister Nirmala Sitharaman announced two things. One, to launch an official cryptocurrency and the second, to levy a 30% tax on income from crypto assets with effect from April 1, 2022, besides a 1% TDS to disincentivise the crypto community. The first task has already gotten off the ground with the RBI launching a pilot digital rupee that’s legal tender and not a cryptocurrency, which the central bank maintains is a threat to the nation’s financial stability. With just three months to go for the forthcoming Budget which will likely see cryptos entering the indirect tax net, the government must call time and define virtual digital assets once and for all.
But the trouble is in its definition. Currently, the GST Act doesn’t define cryptos or virtual digital assets and must be classified as goods or services. Under GST, goods include moveable properties but exclude money and securities. While services are anything other than goods, money and securities, they include the use of money or conversion from one currency to another, attracting commission or interest. But digital assets are strictly neither considered money nor security and hence need clarity. Elsewhere, cryptos are variously treated as property, currency, and commodities and are taxed accordingly. In other words, there’s no universal way to tax cryptos, and India must chart its course about the valuation of crypto transactions and their tax liability.
The regulatory journey of cryptocurrencies, from an outright ban in 2018 to drafting legislation last year, has come a long way. And if there’s one distinguishing element of cryptos, it’s the speed with which it peaks and falls. The asset class is so dangerously volatile that the total global crypto market value fell off its all-time peak of $2.9 trillion in November 2021 to about $903 billion. The Centre’s cautious stance is understandable, but it must avoid the scope of trading under the table. For instance, following the income tax levy on cryptos, it is suspected that trading moved to the grey market to avoid the taxman. A balanced approach encouraging participation is as essential as an efficient taxation structure to generate income and to ensure that the industry sustains.