MOMENT OF GLORY?
The announcement of a tax slab on virtual digital assets has been welcomed by the crypto industry, even though taxation does not necessarily mean legalisation. SYNERGIA FOUNDATION RE S E A RCH
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s the 2022 Union Budget was presented in the Indian Parliament, the focus on digitisation was apparent. While many significant announcements were made, what captured global attention was the proposed taxation scheme for digital assets, including cryptocurrencies and non-fungible tokens (NFTs). According to Union Finance Minister Ms. Nirmala Sitharaman, there had been such a phenomenal increase in the magnitude and frequency of virtual asset transactions in India that it was imperative to provide for a specific tax regime. Accordingly, the government declared a flat 30% tax on income from digital assets, with an additional one per cent TDS (tax deducted at source) on payments made using such assets. Ms. Sitharaman clarified that no deductions in respect of any expenditure or allowance would be permitted while computing the income, other than the cost of acquisition. Moreover, any loss incurred during transfer could not be set off against other income. Despite the imposition of such a steep levy, much of the crypto industry welcomed this move. This is because the government had hitherto been ambivalent about the future of digital assets in India. It was generally feared that a prohibitive bill would be introduced in Parliament. Now, by bringing it under the umbrella of taxation, there is much optimism that the government has effectively legitimised the trade in private cryptocurrencies and NFTs. Only time will tell if the new tax indeed implies regulation of crypto, as opposed to a blanket ban that was proposed earlier.
Contrary to popular opinion, the introduction of a hefty taxation scheme may actually prove to be punitive in the long run. It could act as a deterrent in trading, with many people disincentivised from investing in virtual digital assets. UNPACKING IMPLICATIONS
While cryptocurrency investors and coin exchanges have hailed the taxation measure as the first step towards legitimising the digital asset class, Finance Minister Nirmala Sitharaman has been quick to clarify that this is not necessarily the case. According to her, the Crypto bill is still under consultation with various stakeholders, and any inference about the legal status of cryptocurrencies would be premature at this stage. All that the Budget has sought to do is recognise the peer-to-peer (P2P) nature of crypto, taxing it like any other source of income. Indeed, taxability and legality have no direct connection. Merely because something is taxed does not make it legal. There are a number of court judgments that buttress this principle. For instance, in the 2008 case of Commissioner of Income Tax v. K Thangamani, the Madras High Court had confirmed that income from illegal activities could be taxed. The income tax authorities were not necessarily concerned with the manner or means of acquiring income in order to bring it within the ambit of taxation. Given this reality, the proposed 30 per cent tax does not automatically translate to legal recognition of digital asset transactions. The same will be left to the provisions of the upcoming ‘Cryptocurrency and Regulation of Official Digi-
