The 2022-2023 budget was the first Indian budget that made clear how virtual and digital assets such as cryptocurrency ought to be taxed.
The basic premise outlined was the fact that any income drawn from the transfer of virtual digital assets of any kind is to be taxed at a rate of 30 per cent.
However, with the view that has been taken, many likened these incomes as purely speculative in nature, akin to collecting lottery winnings.
Does the Crypto Tax have any benefits?
Unlike countries such as China, India has accepted crypto in some form by not banning it. The government will earn via a new revenue stream. More long term investments may be seen, further strengthening the case for legitimacy.
Crypto Tax Cons
As investors will not be able to set off any losses, according to the policy, taxation benefits will be lost. This will directly impact trading volumes, thererby making the entire process counter-productive.
Low volumes of trades generate low tax to the government, low income for exchanges and lower profits to traders.
The entire crypto ecosystem thus suffers.
Crypto Tax Fallout
Other economies have taken around the world, with friendlier tax rates will attract Indian investors bogged down by the rules. The entire industry may shift to such crypto-friendly countries., which again means emptier crypto coffers for India.
The Crypto Taxation thus needs to be framed in a manner that benefits investors, exchanges and government alike.
If that balance is not achieved, small investors may shift to friendlier mutual funds, subject to lesser market risks.