Budget 2022: Crypto Players Seek Clarification on Sitharaman’s Budget Taxes and Regulations

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New Delhi: The crypto industry, which walks a thin line or actually operates in the gray area of ​​legality and regulation, has high hopes from Finance Minister Nirmala Sitharaman, who will table the budget of the Union on February 1.

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

However, the demands of industry players, investors and other stakeholders are likely to reach the government, which can finally pay attention to lifting the clouds of ambiguity and can steer the future towards the way forward.

Previously, it had been speculated that a bill would be introduced in the winter session of Parliament to ban or regulate crypto assets. However, the same has not been introduced, and now all eyes are on the first day of next month.

The first and main expectation of the budget would be to clarify the legal qualification of cryptocurrencies for tax purposes.

The tax treatment of cryptos under income tax and GST will vary significantly depending on whether cryptocurrencies are treated as goods, services, securities, assets or currencies, said Purushottam Anand, Founder of Crypto Legal.

“Most uncertainties related to tax treatment will be resolved once cryptocurrencies are defined in law to end any speculation regarding its legality,” he added.

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

The government’s intention to regularize and monitor, if not a blanket ban, on crypto investments seems clear. Currently, India has the highest number of crypto owners in the world.

According to a recent study by Nasscom and WazirX, the Indian cryptocurrency market has grown exponentially over the past few years. Indian investment in cryptocurrency is expected to reach $241 million by 2030.

Amit Singhania, Partner, Shardul Amarchand Mangaldas and Company expects strict 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 the taxation of cryptocurrency income,” he added.

In addition, provisions relating to non-resident taxation, significant economic presence criteria and tax withholding responsibilities will be introduced through circulars or notifications after the 2022 budget announcements, said experts.

Ravi S Raghavan, Partner Tax, Majmudar & Partners International Lawyers, said the 2022 budget proposal will likely include an “explanatory provision” to clarify the term immobilization under section 2(14) of the 1961 Act on income tax.

“Crypto property held by a taxpayer will be subject to tax in India depending on the intention to hold it either as investments to be taxed as capital gains or as a 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 assets on tax returns.

A taxpayer will have to report the transactions either as business income if held as trading shares or as capital gains if held as an investment, as the case may be, and any failure may lead to interest and penalties.

Tax return forms will be amended in due course for the period ending March 31, 2023, said Raghavan of Majmudar & Partners International Lawyers. Many experts have proposed a higher tax rate of 30% on income from cryptocurrencies modeled on the taxation of income from lottery, game shows or puzzles. But not everyone has the same opinion.

Crypto Legal’s Anand thinks there is no justification for such strict tax treatment of crypto income.

“Cryptocurrency revenue should not be equated with lottery or puzzle revenue simply because of the current volatility in cryptocurrency prices,” he added.

Modification of existing laws and acts? The 2022 budget may set out provisions on taxations on crypto assets, as well as the rate of short-term and long-term capital gains imposed on them. The provisions of the Income Tax Act 1961 dealing with the definition of fixed assets, the taxation of capital gains and speculative business income will most likely be amended, Shardul Amarchand Mangaldas’ Singhania said.

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

The budget can also provide guidance on the tax treatment of Peer-to-Peer (P2P) transactions, where users buy or sell crypto to each other using a particular crypto exchange. The method has gained popularity lately.

According to Raghvan, various laws and statutes would need to be changed once crypto assets come under tax or new era investing is regulated through a new bill.

This includes Securities and Exchange Board of India Act, Companies Act, Foreign Exchange Management Act, Income Tax Act, Securities Transaction Tax, Goods and Services Tax, Sale of Goods Act, Banking Regulation Act, 1949,

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