Heavy tax on cryptocurrencies was announced in India in the budget for the financial year [2022-23]. The Finance Bill [2022-23], inter alia, states that a new clause [115BBH] shall be added to the Income-tax Act. This section deals with recovery of income tax at the rate of 30 per cent on income from virtual digital currency. Its announcement raised many questions about the future of crypto and the new tax across the country.
Siddharth Jarabi and Sakshi Batra of Business Today Television discussed these topics in detail with senior officials of the Finance Ministry. Here is the edited excerpt of the conversation
Q: Is the government legalizing cryptocurrencies by taxing them?
Reply to CBDT Chairman JB Mohapatra: The answer to your question is – no. The imposition of tax is not meant to legalize crypto trading or any profit or loss arising out of it. As a department, we cannot question the legality of any business or business, profession or any field of transaction. We have a right to look into the post-trade taxation aspect.
Q: How big is India’s cryptocurrency ecosystem?
Mohapatra: We are aware of few exchanges operating in India. It is being said that their number is 40. Of these, 10 are major exchanges. The turnover of the largest exchange is Rs 34,000 crore. So it can be said that the market size is huge. According to unconfirmed reports, around 100 million people have invested in some form of crypto.
This amount is too little or too much. We are not interested to know whether the investment amount is small or large. We are interested in quality and source of investment. We do this to see if the source of income is legitimate or illegal. If income from illegal sources is invested, not only the profits from the business are taxed, but the entire illegal investment is taxed as well. In this way, a kind of order or discipline can be brought by income tax in the crypto market.
Q: What are Virtual Digital Assets?
Mohapatra: Digital assets have been defined in 247A of the IT Act. Simply put, any code or any information or any formula that is generated cryptographically, which has an inherent value and which can be transmitted or stored electronically, can be called a digital asset. , it also includes NFTs.
Q: Isn’t 30% tax rate too high?
Mohapatra: I don’t think this tax rate is too high. Companies are also being taxed at 30 percent. Firms and LLPs are also taxed at the same rate.
Q: Why tax cryptocurrencies without a law?
Finance Secretary T.V. Somanathan: The Income Tax Act does not keep any income other than income from agriculture out of the purview of tax. Even before this law, income from cryptocurrencies was taxable, it is today and will remain so after April 1. Only the tax regime is changing. It is taxable even before April 1, but not at the rate of 30 percent.
Currently, it is based on classification of income as business income or capital gain. In such a situation, this change has been made to bring clarity about the tax. Both legal and irregular income are taxable. Even illegal income is taxable. If an IAS officer takes bribe then that too is taxable. However, crypto is not illegal