Thread by @SinoGlobalCap

Taxation & CBDC.
India regulatory update, February 2nd 2022.

Note: The below regulatory update is based on transcripts from the 2022 Budget Session and various news sources.

It turned out to be a historic moment for India when the honourable Finance Minister of India Nirmala Sitharaman presented the Proposed Union Budget for the year 2022-23. The Government put..

..forward proposals for the taxation of crypto assets, which was long awaited by the Indian crypto ecosystem, as well as a basic framework for the introduction of India’s version of the CBDC.

Photo source: Shekhar Yadav/EPS)

She said “There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.”

This provided a sigh of relief and clarity to millions of cryptocurrency investors in India after a rollercoaster ride of emotions fueled by speculation (and FUD) in the past few months.
The Government classifies crypto as Virtual Digital Assets.

As per the definition of the bill this will include:

- Fungible tokens
- Non Fungible tokens
- Any other digital asset, as the Central Government may, by notification in the Official Gazette specify.

This definition is quite broad and would include all manner of cryptocurrencies.

Some key points from the budget session with regards to Virtual Digital Assets include those regarding:

1. Income Tax:

1.1. Taxation on transer

- For the sake of taxation, a new section 115BBH was proposed to be added to the Income Tax Act which will come into effect from 1 April 2023 and will apply for the assessment year 2023-24.

- This section proposes a 30% flat tax rate on any income which arises from the transfer of “Virtual Digital Assets” as described above.
taxguru.in/income-tax/sch…

1.2. No deductions

- No standard deductions applied for the purpose of taxation would be available to users with regards to any expenditure except the acquisition cost of the VDA.

1.3. No offset of losses

- Furthermore, no offset of any losses from transfer of VDAs shall be allowed against any income from other provisions of the Income Tax Act and such losses thus cannot be carried forward to subsequent assessment years.

2. Transfers

- “Transfer”, as per the Income Tax Act, includes sale, exchange or relinquishment of the asset or extinguishment of any rights to the asset.

3. Speculative treatment

- The government through this provision aims to treat virtual digital assets as a speculative asset class. This is done to ensure stability of the financial system and to protect users from speculative trading of VDAs.

4. TDS

- Tax deduction at source (TDS) on transfer of VDAs: TDS, introduced with an aim to collect tax from the very source of income, in India is a means of collecting tax on income, dividends, or asset..

..sales by requiring the payer (or legal intermediary) to deduct tax due before paying the balance to the payee (and the tax to the revenue authority).

- This section proposes to levy a deduction of tax on payment for transfer of VDAs to a resident at 1% by inserting Section 194S of the IT Act.

- According to the language of the bill, the above includes usage of digital assets swaps i.e. exchange of one digital asset for another.

5. Exceptions

2 Sections of the Income tax Act would not apply:

Section 203A : incometaxindia.gov.in/_layouts/15/di…

Section 206AB: cleartax.in/s/tax-deductio…

No tax is to be deducted in case the value or aggregate of such value is less than 50K INR ($670) in a financial year

This aspect of the bill requires more clarity in order to ascertain what kind of transactions the TDS is going to be applied to. The aim of the Government here, as stated in the Bill, is to..

..widen the tax base from transactions carried in relation to VDAs. Hence it can be expected that this definition will be interpreted as widely as possible

6. Gifts

“Gift” is the transfer of property from one person to another, where the transferor gives such property to the transferee, willingly and without any compensation / favor in return.

In the proposed budget the gifting of Virtual Digital Assets is proposed to be taxed as property. Thus, the liability falls on the recipient to pay such a tax. This will come into effect from 1st of April 2023.

.CBDC’s

The Honorable Finance minister Nirmala Sitharaman said that the country's central bank, the Reserve Bank of India (RBI), will introduce a digital currency in the next financial year using blockchain and other supporting technologies.

“Introduction of a central bank digital currency will give a big boost to the digital economy,” Nirmala Sitharaman said on Tuesday while presenting the budget. “Digital currency will also lead to a more efficient and cheaper currency management system.”
ndtv.com/video/embed-pl…

To this effect, the Reserve Bank of India Act, 1934 is proposed to be amended in section 2. The amendment is to the definition of a “bank note” which would now include both physical and digital form.

The current taxation proposal should be welcomed as further legitimization of the booming crypto industry in India. Though the Indian government is taking a cautious approach, keeping in mind the risks the market can pose to..

..investors, we believe these updates are a step in the right direction. As feedback and consultations continue between the Govt and industry, we are hopeful that further legitimization, recognition and liberalization follow suit.

Sources:

Budget transcript

https://twitter.com/tanvi_ratna/status/1488439887259127811

https://twitter.com/tanvi_ratna/status/1488418119886401537

News articles
bloomberg.com/news/articles/…
financialexpress.com/budget/cryptoc…
businessinsider.in/budget/news/fr…
moneycontrol.com/news/business/…

https://twitter.com/defi_india/status/1488442438922342400?t=KS2UQ8GhBzljRXr2_gpAAw&s=1

Typo: *transfers