Mixed Reactions Trail India’s Passage of 30% Crypto Tax Law

Reactions have been pouring in from stakeholders in the crypto and digital assets industry in India following the approval of the country’s Finance Bill 2022 on Friday by Lok Sabha, the lower house of India's bicameral parliament.

While some stakeholders were pessimistic of the section of the Bill mandating a capital gains tax of 30% on crypto transactions, others were optimistic that the law would relax with time.

Nirmala Sitharaman, India’s Finance Minister, during a budgetary speech delivered before the House in February had said the government would impose 30 percent taxation on the transfer of virtual assets for the financial year 2022 to 2023.

Additionally, she disclosed the government’s intention to lay a 1% tax deducted at source (TDS) on the purchase and sale of cryptocurrencies in the country. She added that any gifts made in digital currencies will be taxed at the hands of the recipient.

In addition, the finance minister had confirmed that crypto holders cannot offset their losses from cryptocurrencies with the capital gains tax, which is allowed for stock investors.

However, despite the industry’s call for the government to tone down the crypto taxation, the bill was passed into law, with Sitharaman insisting that the government was taxing crypto because people are profiting from it.

With the passage, the crypto taxes will come into effect on April 1, while the TDS will start on July 1.

Mixed Industry Reactions

Nischal Shetty, the Chief Executive Officer of WazirX, one of India’s biggest cryptocurrency exchanges, said the passage “is poised to do more harm than good,” adding that the law could shoot down patronage of Indian exchanges and a subsequent increase in capital outflow to foreign ones.

Sathvik Vishwanath, the Co-Founder and CEO of Unocoin, was particularly concerned about the effect the law will have on crypto traders in the country.

“This will have some repercussions on traders, especially the 1% TDS assessment. This will not only affect traders but also tax collections. We hope that in the subsequent years the crypto industry gets treated like other investment-related industries,” he explained.

Abhay Aggarwal, the CEO and Founder of the non-fungible token (NFT) marketplace, Colexion, said the law will hamper the overall growth of the sector by reducing countrywide adoption and credibility.

However, on the positive side, Coinstore, a Singapore-based crypto exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term that recently started operations in India, believes that the crypto tax is a good move that “will open the doors for crypto regulation in one of the largest democracies in the world.”

“India is a tech powerhouse, and it has the potential to lead the world in the crypto and blockchain revolution. Some may feel that the tax structure is on the heavy side but it may undergo adjustments to match global expectations as the crypto industry in India enters a more mature phase. We are hopeful that Indian regulators will reach a consensus with the crypto industry soon,” said Charles Tan, the Head of Marketing at Coinstore.

Lennix Lai, a Director of OKX, formerly known as OKEx, the Seychelles-based cryptocurrency exchange Cryptocurrency Exchange A cryptocurrency exchange is an online platform that supports the exchange of various currencies for a cryptocurrency or digital asset.Comparable to a generalized financial exchange, a crypto exchange’s core function is to permit and encourage the buying and selling of cryptos.This is accomplished by producing a stable trading environment suitable for traders nested through different locations around the world. Sometimes a crypto exchange may be referred to as a digital currency exchange (DCE) f A cryptocurrency exchange is an online platform that supports the exchange of various currencies for a cryptocurrency or digital asset.Comparable to a generalized financial exchange, a crypto exchange’s core function is to permit and encourage the buying and selling of cryptos.This is accomplished by producing a stable trading environment suitable for traders nested through different locations around the world. Sometimes a crypto exchange may be referred to as a digital currency exchange (DCE) f Read this Term, also toed Tan’s line, noting that taxing a certain asset class indicates that those assets are recognized as a tradable asset class by the country's regulator.

“That gives the industry a lot more clarity on the legal status of crypto and its derived income. Hence it is good news for the industry in India with respect to building a more regulated operating environment for crypto,” Lai added.

Distrust in Cryptocurrencies?

For some time now, the Indian government has been mulling over the possibility of launching its own central bank digital currency (CBDC). In a budgetary speech in February, Shitaraman had said the Reserve Bank of India (RBI) was going to introduce the CBDC in the country’s next financial year.

Meanwhile, the Indian government had initially made efforts to impose a complete ban on cryptocurrencies as a payment mode with a bill that recommended strict jail terms for violators who could be arrested without a warrant.

The Cryptocurrency and Regulation of the Official Digital Currency Bill had also sought to ban all private cryptocurrencies in the country, although it wanted to allow for “certain exceptions to promote the underlying technology of cryptocurrency and its uses.”

Furthermore, tax evasion has been a problem in the Indian cryptocurrency space. A raid on six Indian crypto exchanges earlier this year had uncovered $9.4M in unpaid taxes with WazirX alone evading $6 million in taxes.