budget 2022: Crypto players seek clarity on taxes and regulation from Sitharaman’s Budget

Synopsis

The intention of the government to regularize and monitor, if not a blanket ban, crypto-investments seems clear. Currently, India has the highest number of crypto owners globally.

Tax experts agree that the government is likely to take strict measures in terms of reporting crypto property in tax returns.

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Budget 2022: Complete CoverageBudget 2022: Complete CoverageNew Delhi: The crypto industry, which is walking on a thin line or is actually operating in the grey area of legality and regulations, has high hopes from Finance Minister Nirmala Sitharaman, who will table the Union Budget on February 1.

Currently, there is no legislation, act or law to govern, regulate or prohibit dealing in crypto assets in India. Therefore, it is not illegal to sell, purchase, deal or mine cryptocurrencies or set up a cryptocurrency exchange in the country.

However, the demands from the industry players, investors and other stakeholders are likely to reach the government, who may finally give heed to clear the clouds of ambiguity and may steer to the way ahead for the future.
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Earlier it was speculated that a Bill would be introduced in the winter session of Parliament to ban or regulate the crypto assets. However, the same was not introduced, and now, all eyes are on the first day of the next month.

The first and foremost expectation from the Budget would be to get some clarity on the legal characterisation of cryptocurrencies for tax purposes.

Tax treatment of cryptos under income tax and GST will significantly vary depending on whether cryptocurrencies are treated as commodity, service, security, asset or currency, said Purushottam Anand, Founder, Crypto Legal.

“Most of the uncertainties relating to tax treatment will be resolved once cryptocurrencies are defined in law to end any speculations regarding its legal character,” he added.

Also, GST will clarify whether the sale of the crypto property will be treated as goods or intangible assets or sale of proprietary property or services to attract 18 per cent GST.

The intention of the government to regularize and monitor, if not a blanket ban, crypto-investments seems clear. Currently, India has the highest number of crypto owners globally.

As per a recent study by Nasscom and WazirX, India’s cryptocurrency market has seen exponential growth over the past few years. It is expected that the investment by Indians in cryptocurrency could touch $241 million by 2030.

Amit Singhania, Partner, Shardul Amarchand Mangaldas and Company expects stringent reporting requirements for crypto-investments in the upcoming Finance Bill.

However, “the Finance Bill will address existing ambiguities around crypto-taxation by introducing more formal and definitive provisions for taxation of income from crypto-currencies,” he added.

Additionally, the provisions in relation to non-resident taxation, significant economic presence criteria, tax withholding responsibilities will be brought in through circulars or notifications after the Budget 2022 announcements, experts said.

Ravi S Raghavan, Partner Tax, Majmudar & Partners International Lawyers, said that the Budget 2022 proposal is likely to include an ‘explanation provision’ to clarify the term capital asset under section 2(14) of the Income-tax Act, 1961.

“The crypto property held by a taxpayer will be liable to tax in India depending on the intention to hold it either as investments to be taxed as capital gains or trade, which is to be taxed as business income,” he added.

Tax experts agree that the government is likely to take strict measures in terms of reporting crypto property in tax returns.

A taxpayer will have to report transactions either as business income if held as stock in trade or capital gains if held as investments as the case may be and any failure can attract interest and penalty provisions.

The tax return forms will be modified in due course for the period ended March 31, 2023, said Raghavan from Majmudar & Partners International Lawyers.
Many experts have proposed a higher tax rate of 30 per cent on income from cryptocurrencies on the lines of taxation of income from lottery, game shows or puzzles. But not everyone has a similar view.

Anand of Crypto Legal thinks there is no justification for such stricter tax treatment of income from cryptos.

“Income from cryptocurrencies should not be equated with income from lottery or puzzles simply because of the current volatility in the prices of cryptocurrencies,” he added.

Amendment in existing acts and laws?
The Budget 2022 may state provisions over the taxations on the crypto assets, along with the rate of short term and long term capital gains levied on them.
Provisions of Income-tax Act, 1961 dealing with the definition of capital assets, taxation of capital gains and speculative business income are most likely to be amended, said Singhania of Shardul Amarchand Mangaldas.

“We may also see TDS/TCS requirements to track or to capture the said transaction in the tax net”, he adds. Additional reporting requirements in the hands of crypto exchanges in the upcoming Budget.

The Budget may also provide some guidance on the tax treatment of Peer-to-Peer (P2P) transactions, where users buy or sell cryptos among themselves using a particular crypto exchange. The method has gained popularity lately.

According to Raghvan, various laws and acts would need an amendment once the crypto assets are under the purview of the taxations or if the new age investment gets a regulation through a new Bill.

This includes The Securities and Exchange Board of India Act, The Companies Act, The Foreign Exchange Management Act, Income-tax Act, Securities Transaction Tax, Goods and Services Tax, Sale of Goods Act, The Banking Regulation Act, 1949,
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Updated: 01/19/2022 — 03:00