Adhering to Global Regulations
The Indian government has declared its intention to follow global regulations on cryptocurrencies, despite the recent surge in Bitcoin prices following the US presidential elections. A source within the Finance Ministry informed Business Today that India will prioritize policies that benefit its economy, without being influenced by other countries.
The Department of Economic Affairs is finalizing a paper on cryptocurrency, which will be released soon. This paper will outline India's approach to regulating cryptocurrencies and will likely address concerns about the potential risks associated with these digital assets.
Bitcoin's Record High and the Impact on Altcoins
On Wednesday, Bitcoin reached a new record high of $94,078. This surge can be attributed to several factors, including advancements in the crypto and financial sectors. Reports suggest that Donald Trump's media company is exploring the acquisition of crypto trading firm Bakkt, while BlackRock's iShares Bitcoin Trust has introduced options trading. The rise above $94,000 underscores Bitcoin's growing importance as an institutional asset.
The surge has also impacted altcoins, prompting a brief rally followed by a correction. Despite these fluctuations, analysts maintain a positive sentiment and anticipate continued growth fueled by institutional investors.
Challenges and Regulations
In India, the cryptocurrency landscape presents a different set of challenges. Despite witnessing a gradual increase in the number of cryptocurrency enthusiasts and investors in recent years, there continues to be a lack of regulatory clarity in the country.
The FY2022-23 Budget introduced a flat tax rate of 30% on gains from Virtual Digital Assets (VDAs) or crypto assets, irrespective of the individual's income tax slab rate. Additionally, a 1% tax deducted at source (TDS) was enforced on all transfers involving such assets.
To clearly define and classify Virtual Digital Assets, a new Section 2(47A) was incorporated into the Income Tax Act.
Starting from April 01, 2022, Section 115BBH of the 2022 Budget imposes a 30% tax (plus a 4% cess) on profits derived from trading cryptocurrencies or other virtual digital assets.
Effective from July 01, 2022, Section 194S now mandates a 1% Tax at Source on transfers of crypto and other VDAs exceeding INR 10,000 (or INR 50,000 in certain cases) within the same financial year.
Taxation on cryptocurrency transactions applies to a variety of individuals, such as private investors, commercial traders, and anyone participating in the exchange of digital assets within a particular fiscal year.
The tax rate is uniform across all income levels and does not distinguish between short-term and long-term profits.
If the transaction occurs on an Indian exchange, the exchange will withhold Tax Deducted at Source (TDS) and send the remaining funds to the seller. In this case, the buyer is not obligated to take any additional steps.