Taxing crypto doesn’t ensure legal status: FM Sitharaman

The government has the “sovereign right” to tax profits made from virtual digital asset transactions, finance minister Nirmala Sitharaman said on Friday, stressing that the Budget announcement has neither legalised cryptocurrencies, nor prohibited them.

Replying to a general discussion on the Budget for FY23 in the Rajya Sabha, the minister said: “I am not going to legalise it or ban it at this stage. (A decision on) Banning or not banning will come subsequently, after consultations.”

About profits accrued from cryptocurrency transactions, she said: “(Whether it is) legitimate or illegitimate, it is a different question, but I will tax because it is a sovereign right to tax.”

The Budget for FY23, the minister said, stands for continuity and brings predictability to the taxation regime. The idea is to ensure sustainable recovery of the economy that witnessed a record contraction of 6.6% in FY21 in the wake of the pandemic. The unprecedented Covid crisis caused the economy a loss of Rs 9.57 lakh crore, compared with that of Rs 2.12 lakh crore during the global financial crisis (GFC) in FY09.

However, despite the contraction and tangled supply chains, the government was able to rein in retail inflation at 6.2% in FY21, she said, seeking to repudiate the Opposition’s criticism that the government had failed to curb price rise. In contrast, during the GFC in FY09, the country’s inflation stood at 9.1%, even though that crisis caused far less damage to the economy than the pandemic.

The Budget also stepped up focus on the quality of expenditure by sharply raising the capex outlay to a record Rs 7.5 lakh crore for FY23, given its much-higher multiplier effect, the minister said.

The finance minister’s clarification on cryptocurrencies comes after the Budget’s move to tax income from digital asset transaction began to be seen by some as a move to grant legitimacy to cryptocurrencies, even as the central bank has always made public its discomfiture over such assets.

Only a day before, Reserve Bank of India (RBI) governor Shaktikanta Das had warned investors that they must remember cryptocurrencies have no underlying asset, “not even a tulip”. He was probably alluding to tulip mania of the 17th century, when contract prices for tulip bulbs shot up to extremely high levels before crashing in a matter of years.

The government’s taxation move followed its decision to delay the introduction of the Cryptocurrency and Regulation of Official Digital Currency Bill in Parliament. The Bill was listed to be taken up during the last session of Parliament but the government later demurred, as it opted for wider consultations before seeking the House approval.

In the Budget for FY23, Sitharaman proposed to tax gains on the sale of private crypto assets at a flat rate of 30%, without any deduction or exemption. The loss from the sale of these assets cannot be set off against any other income and a 1% TDS (tax deducted at source) will also be levied on payments made on the transfer of digital assets.