India eventually gave some recognition to cryptocurrencies and digital assets, although it would propose a 30% tax on income from all virtual assets. This levy includes cryptocurrency exchanges, as well as NFT (Non-Fungible Token) trades.
The move comes after a lot of uncertainty about the legality of cryptocurrency trades and exchanges created by *** or a blanket ban last year. However, Finance Minister Nirmala Sitharaman said that the government will soon introduce a new draft of the crypto bill, which aims to regulate digital currency transfers.
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By introducing taxation, India has legalized cryptocurrency and allayed the fear of restrictions on trade. The move will give global investors and exchanges the confidence to establish a base in India and cater to a growing audience of over 15 million cryptocurrencies. In addition, companies that build Metaverse products may be attracted to use millions of developers located in the country.
However, it is one of the first countries in the world not to allow any offset from losses in cryptocurrency trading, which would scare off investors.
Let's see how this new rule will actually work.
How will the new tax scheme work?
The tax portion is more important for ordinary cryptocurrency traders. Here's what it means for you:
You will be taxed at 30% on your cryptocurrency trading income, and when it comes to other sources of income, such as earned money.
If you buy both Š¾in and Š¾in B for ₹100, and sell them for ₹200 and ₹50, you will have to pay ₹15 as tax (based on 30% rate). But if both your coins sell for ₹50 each, you cannot claim any loss.
This would certainly prompt one to invest cautiously and stay away from volatile tokens. The new rule will be effective from April 1, 2023 for the assessment year 2023-24.
The government will also levy 1% Tax Deducted Tax at Source (TDS) on all cryptocurrency and digital asset transactions, when the transaction exceeds ₹10,000(s).
If you short ₹7,000 on an exchange, and your trading volume exceeds ₹10,000 in a financial year, you will be taxed at 1% of the total amount. However, the limit gets reset for your wallet/account in any other exchange.
Impact of Crypto Taxation on Indian Investors
Currently, more than 15 million Indians have invested in cryptocurrencies so far. This number is expected to increase rapidly in the coming years. Since the Indian government has also highlighted the rules they are implementing, investors accept the changes and see it as a reform.
Although the number of investors is huge, both cryptocurrencies and blockchain technology need more clarity to reach more investors. Currently, only educated candidates and those who have heard about cryptocurrencies from their acquaintances are investing majorly in them. But if this needs to change, regulation is an important step. Now media and online sources will emerge and discuss more cryptocurrencies and the underlying blockchain technology. Eventually, more people will get a chance to learn about virtual assets and try their hand at it.
As mentioned earlier, the cryptocurrency market is a vast area where many things happen. That's why people were always confused about what to do and how to proceed. The regulations will help in setting a standard in terms of education, customer protection, taxation, KYC and compliance. In addition, investors can directly estimate the amount they will pay as tax instead of relying on their accountants. Even cryptocurrency exchanges will evolve and follow cryptocurrency regulations over time.
A look at the past
Speculation on cryptocurrency and regulations in India goes back to 2013. The Reserve Bank of India (RBI) has issued a warning not to fall for virtual currencies. The statement comes after it became a major buzzword in the days of digital tokens. However, as banks continued to allow transactions on cryptocurrency exchanges, in 2018, the RBI issued a circular asking commercial and cooperative banks to refrain from allowing money for crypto exchanges. Later, the Supreme Court of India lifted the ban on cryptocurrency imposed by RBI.
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