Budget 2022 Explained: How will tax on crypto work
The government has proposed to issue a Digital Rupee, or Central Bank Digital Currency (CBDC), in the fiscal year 2022-23. Additionally, the Budget also proposed imposing a tax of 30 per cent on virtual assets, effectively legitimising trading of private cryptocurrencies and non-fungible tokens. This is broadly in line with the Centre’s plans to have a fiat digital currency, while disallowing use of private virtual coins as legal tender.
While presenting the Union Budget on Tuesday, Finance Minister Nirmala Sitharaman said the Digital Rupee will be issued by the RBI using blockchain technology starting from the next financial year. The introduction of digital currency by the central bank will lead to cheaper and faster currency management.
However, the Finance Minister did not mention about the Cryptocurrency Bill for the regulation of private cryptocurrencies in her Budget speech. Indian investors have put around Rs 45,000 crore in private cryptocurrencies. The RBI has been against private cryptocurrencies, saying they are a serious concern from a macroeconomic and financial stability standpoint.
And Ms. Finance Minister, pl do tell the Nation –
Is Crypto Currency now legal, without bringing the Crypto Currency Bill, as you tax the crypto currency?
• What about its regulator?
• What about regulation of Crypto Exchanges?
• What about investor protection?#Budget2022— Randeep Singh Surjewala (@rssurjewala) February 1, 2022
How will the taxation structure work?
The Finance Minister also said that the 30 per cent tax on virtual assets cannot be mentioned as a replacement of any other income (meaning it cannot be claimed for deduction), in addition to a 1 per cent TDS that will be charged on payments made using digital assets in order to keep a track on transactions.
The Central Board of the RBI had recently discussed various aspects, including the status, of the central bank digital currency. RBI officials informed the board that a pilot project for the introduction of CBDC will be launched soon. The RBI is now working on two areas: wholesale account based and retail. While a lot of work is already done on wholesale accounts, the retail issue is slightly complicated and the central bank is taking some time on it.
What are CBDCs?
CBDCs are the virtual or electronic form of fiat currencies (like the Indian rupee or US dollar). Other central banks such as the US Fed and the People’s Bank of China are also planning their own digital currencies. A CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.
There are several models proposed by technology experts and evangelists on how the Digital Rupee could be transacted but a formal announcement by the Reserve Bank of India will likely detail how the Digital Rupee will be transacted by citizens. One chief difference will be that a Digital Rupee transaction will be instantaneous as opposed to the current digital payment experience.
CBDC vs VCs
CBDC is not comparable to the private virtual currencies (VCs) that have mushroomed over the last decade. Private virtual currencies sit at substantial odds to the historical concept of money.
“They are not commodities or claims on commodities as they have no intrinsic value; some claims that they are akin to gold clearly seem opportunistic. Usually, certainly for the most popular ones now, they do not represent any person’s debt or liabilities. There is no issuer. They are not money (certainly not currency) as the word has come to be understood historically,” RBI Deputy Governor T Rabi Sankar had said.
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