budget 2022: Cryptocurrency players seek clarity on taxes and regulation from Sitharaman’s budget

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New Delhi: The cryptocurrency industry, which is walking a fine line or actually operating in the gray area of ​​legality and regulation, has high hopes from Finance Minister Nirmala Sitharaman, who will present the Union Budget on February 1.

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

However, demands from industry players, investors and other stakeholders are likely to reach the government, which may finally pay attention to clearing the clouds of ambiguity and could guide the way forward for the future.



It was previously speculated that a bill to ban or regulate cryptocurrencies would be presented in the winter session of Parliament. However, the same has not been introduced and now all eyes are on the first day of the following month.

The first and most important expectation from the Budget would be to have some clarity on the legal characterization of cryptocurrencies for tax purposes.

The tax treatment of cryptocurrencies under income tax and GST will vary significantly depending on whether cryptocurrencies are treated as a commodity, service, security, asset, or currency, said Purushottam Anand, founder of Crypto Legal.

“Most of the uncertainties surrounding the tax treatment will be resolved once cryptocurrencies are legally defined to put an end to any speculation about its legal character,” he added.

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

The government’s intention to regularize and monitor, if not a total ban, cryptocurrency investments seems clear. Currently, India has the largest number of cryptocurrency owners globally.

According to a recent study by Nasscom and WazirX, the Indian cryptocurrency market has seen exponential growth in recent years. Indians’ investment in cryptocurrency is expected to reach $ 241 million by 2030.

Amit Singhania, Partner, Shardul Amarchand Mangaldas and Company expects stringent reporting requirements for cryptocurrency investments in the upcoming finance bill.

However, “the Finance Bill will address existing ambiguities about crypto-taxation by introducing more formal and final provisions for the taxation of cryptocurrency income,” he added.

In addition, provisions on non-resident taxation, significant economic presence criteria, withholding tax liability will be introduced through circulars or notifications after the 2022 budget calls, experts said.

Ravi S Raghavan, Partner Tax, Majmudar & Partners International Lawyers, said the Budget 2022 proposal is likely to include an “explanatory provision” to clarify the term equity capital under Section 2 (14) of the Income Tax Act , 1961.

“Crypto property held by a taxpayer will be subject to taxation in India depending on the intention to hold it as an investment to be taxed as a capital gain or trade, which must be taxed as business income,” he added.

Tax experts agree that the government is likely to take strict measures in terms of reporting cryptographic properties in tax returns.

A taxpayer will need to report transactions as business income when held as commercial shares or capital gains if held as investments as appropriate and any default can attract interest and penalties.

The 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 30 percent higher tax rate on cryptocurrency income along the lines of taxing income from lotteries, game shows or puzzles. But not everyone has a similar view.

Crypto Legal’s Anand believes there is no justification for such rigorous tax treatment of cryptocurrency income.

“Cryptocurrency income shouldn’t be equated with lottery or puzzle income simply because of the current volatility in cryptocurrency prices,” he added.

Change in existing acts and laws?

The 2022 Budget can establish provisions on the taxation of cryptocurrencies, along with the rate of short-term and long-term capital gains on them.

It is very likely that the provisions of the 1961 Income Tax Act concerning the definition of assets, the taxation of capital gains and speculative business income will be changed, said Singhania of Shardul Amarchand Mangaldas.

“We may also see TDS / TCS requirements for tracking or capturing the aforementioned transaction in the tax network,” he adds. Additional reporting requirements in the hands of cryptocurrency exchanges in the next Budget.

The Budget can also provide some guidance on the tax treatment of peer-to-peer (P2P) transactions, where users buy or sell cryptocurrencies with each other using a particular cryptocurrency exchange. The method has gained popularity lately.

According to Raghvan, various laws and acts would need amendment once crypto assets are under tax jurisdiction or if the new age investment gets regulation through a new bill.

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

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