JOIN USLok Sabha passes Finance Bill, brings in new tax on crypto
The Lok Sabha Friday passed the Finance Bill 2022, which introduced a new levy on virtual digital assets (cryptocurrencies) from April 1. Any income from the transfer of virtual assets will be taxed at 30 per cent.
The amended Finance Bill also proposed that any losses from the transfer of virtual assets will not be allowed to be set off against the income arising from the transfer of another virtual asset.
Talking about the Finance Bill in the Lok Sabha, Finance Minister Nirmala Sitharaman said the government has proposed to tax virtual currencies because a lot of transactions are happening in that space. People are putting money, taking out, creating assets and money is being generated.
“We are in the process of consultation and till it is concluded, we are taxing the virtual assets also,” she said.
The Bill also proposed a 1 per cent TDS on payments towards virtual currencies over Rs 10,000 in a year and taxation of such gifts in the hands of the recipient. The threshold limit for TDS would be Rs 50,000 a year for specified persons, which include individuals and HUFs who are needed to get their accounts audited under the Income Tax Act. The provisions relating to 1 per cent TDS will be effective from July 1, 2022.
Experts, however, said the proposed 30 per cent tax, irrespective of whether crypto-assets are capital assets or not, will be detrimental to the investor growth that the industry has been seeing so far. This move will make day-traders incapable of saving on taxes even if they are not in the income tax brackets currently. Furthermore, not allowing investors to offset losses from one crypto trading pair by gains from another type will further deter crypto participation and throttle the industry growth.
“We firmly believe that there is a need to regulate and tax crypto, but in its current form, it is poised to do more harm than good. It will also fail to provide desired results for the government. It can result in cascading participation on Indian exchanges that adhere to the KYC norms and lead to a rise in capital outflow to foreign exchanges or to the ones that aren't KYC compliant. This is not conducive for the government or the crypto ecosystem of India,” said Nischal Shetty, Founder and CEO, WazirX, an Indian cryptocurrency exchange.
According to Probir Roy Chowdhury, Partner, J Sagar Associates, a 1 per cent TCS on payments to Indian residents for cryptocurrency transactions will result in a drop in liquidity, as the TCS would be imposed regardless of profit or loss.
Other than taxes on virtual assets, the Finance Minister said India was the only country which did not impose any new tax to meet demands of the economy brought by the Covid pandemic. Citing an OECD report, she said 32 countries including Germany, France, UK and Russia increased tax for reconstruction of Covid-impacted economy.
With the passage of the Finance Bill, the budgetary exercise for 2022-23 was completed.
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