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Also in this letter:
■ Startups benefit from 15% tax allowance limit
■ Opinion: Budget pays off for startups, but problems remain
■Government to set up 75 digital banking units in 75 districts
Budget 2022: Crypto Industry Welcomes Breakthrough, But 30% Tax Is a Concern
The Indian cryptocurrency had its breakthrough on Tuesday when Finance Minister Nirmala Sitharaman said in her budget speech that income from trading these digital assets would be taxed at 30%.
What this means: While its announcement doesn’t make crypto legal, it does give official recognition to these digital assets, giving the industry much-needed validation.
Just to be sure, several lawyers we spoke to said the industry remains in a legal gray area, and only a full-fledged cryptocurrency account would give these assets full legal status.
In an interview with news channel ET Now, JB Mohapatra, chairman of the Central Council of Direct Taxes, clarified that taxation does not imply legalization.
A new chapter: For years there have been reports of an imminent ban on private cryptocurrencies in India, but the budget has closed that chapter, several crypto stakeholders, including founders, venture capitalists and policy experts have told.
This is what Sitharaman suggested in her speech:
- Any income from crypto transfers is taxed at 30%.
- No deductions are allowed in calculating such income, other than the purchase cost. Losses cannot be offset against other income.
- To capture transaction agents, 1% TDS on purchases (above a certain threshold) made with virtual currencies.
- Any gift tax will be borne by the recipient.
Crypto Defined: In another first, the government defined the term “virtual digital asset” as any information, code, number or token, generated by cryptographic means or otherwise, that provides a digital representation of value, or functions as a store of value or a unit of value. account, and can be transferred, stored or traded electronically. “Non-functioning tokens and other tokens of a similar nature are covered by the definition,” it stated.
Yes but: However, it was not all good news. Several crypto platform executives said the 30% tax would harm active traders and force them to take their business to international exchanges. Nischal Shetty, co-founder of WazirX, said the 30% tax rate would be a “downer for those who are in a lower tax bracket because of their annual income.”
Digital rupee: The budget also provided a specific timeline for the launch of India’s central bank digital currency (CBDC).
Sitharaman said a “digital rupee using blockchain and other technologies” will be issued by the Reserve Bank of India in 2022-23.
“Digital currencies will give a big boost to the digital economy,” said Sitharaman. “It will also lead to a more efficient and cheaper currency management system.”
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Startup founders, investors benefit from 15% cap on tax allowance
The long-term capital gains tax (LTCG) surcharge is capped at 15% for all listed and unlisted companies, Finance Minister Nirmala Sitharaman said in her budget speech.
This answers a long-standing demand from new age companies, who wanted the sale of shares of privately held companies to be taxed equally with those of publicly traded companies. Certainly, only the surcharge levied on unlisted share sales has been reduced – from 37.5% to 15%. The tax rate remains unchanged at 20%.
Tax burden 16% lower: Company executives told ET that this change will not only include the sale of employee stock options, but also all transactions by privately funded startups, reducing their tax burden by about 16%.
What else? The government also expanded the tax incentives it offers new startups during the first three years of their inception to four years, taking into account the fiscal pain caused by the pandemic.
Sitharaman also said an expert committee would be established to examine and propose appropriate measures to boost venture capital and private equity investments in startups.
“Venture capital and private equity invested more than Rs 5.5 lakh crore last year, enabling one of the largest startup ecosystems. Scaling up this investment requires a holistic examination of regulatory and other frictions,” she said, explaining the need to establish the committee of experts.
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ETtech Opinion: ‘Digital India Budget’ Delivers Startups, But Some Problems Remain
Budget 2022-23 will enter the award as the Digital India Budget. The government has committed to a digital way forward, with Indian startups as the main vehicles for delivery. The finance minister acknowledged the role Indian startups have played during the pandemic and how they will boost India’s growth over the next 25 years. The word ‘digital’ was mentioned no fewer than 35 times in the budget speech.
For startups, the most important tangible victories were:
- Extending the window for a startup that can take advantage of tax breaks by one year.
- Create parity on the tax surcharge that applies to unlisted shares with listed shares, by limiting it to 15%.
- Creating a fund of funds mechanism for financing innovation in different sectors.
- Crypto tax standards that legitimize crypto as an investment class.
Yes but: These wins need to be contextualized against what startups have been asking for.
One of these requirements was full tax parity between listed and unlisted securities. Unlisted securities pay long-term capital gains tax at 2.4 times the rate of their publicly traded counterparts. While the budget created a parity on the markup, the tax rate for unlisted securities is still double the rate for listed securities.
Click here for the full column from Siddarth Pai, founding partner and chief financial officer at 3one4 Capital.
Government to set up 75 digital banking units in 75 districts
In a major boost to the digital economy, Finance Minister Nirmala Sitharaman said in her budget speech that the Center is proposing to set up 75 Digital Banking Units (DBUs) in 75 districts across India through scheduled commercial banks.
Banking for everyone: The finance minister also announced that in 2022-23, all 1.5 lakh post offices will be connected to the core banking system, enabling financial inclusion and access to accounts through internet banking, mobile banking and ATMs. It will also allow online money transfers between post office accounts and bank accounts.
Sitharaman also said that the financial support for digital payments announced in the previous budget would continue in 2022-23.
FM Announces Plan to Establish Digital University, Create Skills Courses
The finance minister announced in her budget speech that the government would set up a digital university to give Indian students access to world-class education.
She said the digital university would provide classes in all regional languages, creating a hub and spoke network. The digital university will partner with the other central universities and provide the necessary infrastructure and training, she added.
The FM said new platforms for delivering e-learning content over the internet, TV and radio would be launched to help students in rural and semi-urban areas. She also said that “one-class-one TV channel” would be implemented to provide additional education to children to make up for the loss of formal education due to the Covid-19 pandemic.
Sitharaman also announced that Swayam Prabha TV under the PM e-vidya scheme would be expanded from 12 channels to 200 and made available in all regional languages.
Today’s ETtech Top 5 Newsletter is curated by Arun Padmanabhan in New Delhi and Zaheer Merchant in Mumbai. Graphics and illustrations by Rahul Awasthi.
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