Indians will start paying a 30% capital gains tax on cryptocurrency transactions after Parliament approved a contentious bill on Friday, triggering outrage and despair among those in the sector.
In addition to capital gains taxes, Indians purchasing or selling crypto would be subject to a 1% tax deducted at source (TDS) and taxes on crypto gifts, with no loss deductions. Cryptocurrency taxes will take effect on April 1, while TDS will begin on July 1.
The Government’s Statement
Finance Minister Nirmala Sitharaman introduced the bill and steered it through Parliament’s lower house. While the upper house may and did make recommendations, it plays a minor role in Indian financial law.
Over 20 members of Parliament’s lower house responded angrily to the bill, criticising its lack of clarity regarding how crypto is adequately defined. Several members of Parliament stated that the crypto taxes would put an end to the industry.
Sitharaman responded that “there is no confusing signal” and that they have been quite transparent that consultations are underway to determine how they regulate or ban cryptos. She said that the government is taxing cryptocurrency since people are profiting from it.
She stated that the TDS is primarily for tracking purposes; it is not a new or extra tax and that “TDS can always be reconciled with the total tax to be paid to the government.”
The Crypto Sector’s Reactions
New crypto laws enacted by India sparks the sector’s uproar. Source: CoinCulture
India’s crypto sector responded overwhelmingly, seeing the passing of the new law without any favourable amendments as doing more harm than good and impeding the industry’s overall development.
According to Nischal Shetty, India’s co-founder of WazirX, the bill is not beneficial for the government or the Indian crypto ecosystem. It is also likely to lead to cascading participation on Indian exchanges and the increased capital outflow to foreign exchanges.
Sumit Gupta, CEO of the Indian exchange CoinDCX, previously stated that tax provisions have the potential to kill the crypto industry. Meanwhile, Sathvik Vishwanath, co-founder and CEO of Unocoin, another cryptocurrency exchange, showed his regret that “it was sad none of their (the industry’s) requests had been implemented.”
According to Vishwanath, this will have some ramifications for traders, particularly the 1% TDS assessment. This will impact not just traders but also on tax collections. He also added that Indian crypto investors hoped the crypto business to be treated similarly to other investment-related industries in the coming years.
The response was similar across non-fungible token (NFT) exchanges.
Abhay Aggarwal, CEO and creator of NFT marketplace Colexion, voiced that no modifications to cryptocurrency tax regulations have deterred corporations and investors from engaging in the volatile sector. This would restrain the sector’s overall development by limiting mass adoption and its validation.
Global exchange OKX (formerly OKEx) was one of the few entities that considered the bill’s passing as a positive development.
According to its director Lennix Lai, a tax on specific assets suggests that the regulator has identified them as a tradable asset class. This provides the industry with far greater clarity on the legal status of cryptocurrency and its related revenue. As a result, it’s positive news for the Indian cryptocurrency business to establish a more regulated crypto environment.
Shivam Thakral, CEO of Indian cryptocurrency exchange BuyUcoin, was hopeful, stating that “the government did best to their knowledge.” He said that although the government often moves slowly, it will better understand the crypto economy once trade volumes on crypto exchanges decline.
Supreme Court Challenge Next?
Supreme Court Challenge Next? Source: CoinCulture
Rajat Mittal, a tax counsel in India’s Supreme Court, also spoke against the new regulation. “The government has not accepted any suggestions of the crypto industry to tone down the crypto taxation but has tightened the taxation rules making it tougher and perhaps, almost impossible for daily traders and the exchanges to conduct activities in India,” he said.
As the taxes were first suggested in February, the crypto sector was against them and carried out a change.org petition and an online campaign. There was some expectation that the capital gains or TDS might be reduced, but this did not occur.
The sector has previously contemplated a Supreme Court appeal if crypto taxes were not slashed. Although it is doubtful that the industry would pursue such a challenge quickly, it is still evaluating it.
“If such an option exists, it is the last nuclear approach,” Shetty of WazirX warned.
Most businesses have pushed for discussions with the government over taxes, and the law seems to have shifted the needle somewhat toward a judicial challenge.
Thakral of BuyUCoin said that “collaborating is much better than fighting” and predicted that the government would assess the bill’s effect and make necessary adjustments quickly. The possibility of petitioning the Supreme Court is not required until at least July 1, at which point he expects the industry will have stepped up its efforts to decrease TDS.
“That is something we are careful about. The Supreme Court won’t consider petitions against high taxes by the government on a particular category of asset. Regardless, all the key players including us in the crypto industry have already come together to take constructive steps,” Aggarwal of Colexion said.