Cryptocurrency tax: Budget proposal spurs talk of legality, 'grey area'

Union Budget proposes taxing income from the transfer of virtual assets at 30%; FM says central bank will issues its own digital currency.

The government has said it doesn’t treat trading in crypto assets as illegal, a day after it announced taxing such transactions just the same as winnings from gambling.

“They are in a grey area. It’s not illegal to buy and sell crypto,” Finance Secretary T V Somanathan said in an interview to Bloomberg Television. “We have now put in a taxation framework that treats crypto assets the same way we treat winnings from horse races, or from bets and other speculative transactions.”

Here is more to know about the government’s thinking on crypto assets.

“Digital payments will be regulated, much like standard currency is regulated by the Reserve Bank of India (RBI),” said Prime Minister Narendra Modi on Wednesday in a speech to workers of his Bharatiya Janata Party. “Such payments are more secure, efficient, and safe, and goes a long way towards paving the way for a global digital payments' infrastructure.”

At post-Budget media interactions on Tuesday, Finance Minister Nirmala Sitharaman said the government taxing income from digital virtual assets did not give them legitimacy and that issue was being dealt separately in the planned cryptocurrency Bill. 

"The RBI will be issuing a digital currency. A currency can be issued only by the central bank even if it is a cryptocurrency. Anything outside that though we refer to them as currencies, they are not so. Buying and selling is happening and profits are being made, and nothing stops me from taxing them. Taxing does not confer on them legitimacy," she said, referring to India’s central bank.

The budget on Tuesday on proposed taxing income from the transfer of virtual assets at 30 per cent--effectively removing any uncertainty about the legal status of such transactions, said Bloomberg.

The steep tax rate on crypto could dissuade trades that have been soaring in India despite the central bank’s warnings about the risks of money laundering, terrorist financing and price volatility. The government is working on a legislation to regulate cryptocurrencies and the proposed law will have to be cleared by India’s Cabinet before before being taken to lawmakers.

“What will happen to the future regulation of crypto that’s an ongoing debate,” Somanathan said. “The government’s approach is to consult widely and also to look at what’s happening internationally,” he told Bloomberg.