How Crypto Development Will Take A Shift In India After Budget 2022?

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How Crypto Development Will Take A Shift In India After Budget 2022?

March 23, 2022 | By SYNARION IT

Crypto Development

On February 1, 2022, Indian Finance Minister Nirmala Sitharaman presented the annual budget for the next fiscal year. Although the budget laid out a comprehensive and ambitious plan to increase public spending, it largely refrained from changing the current tax structure – aside from the massive announcement of a cryptocurrency tax. Assets (defined as virtual digital assets by the government).

Under these new rules, income generated from the transfer of virtual assets will be taxed at 30%. In addition, a 1% tax (withholding tax) will be levied on payments made in connection with the transfer of virtual digital assets. Even the gift of virtual digital support is also offered to be taxed in the hands of the recipient. While a 30% tax is one of the highest in the country, and some of the provisions may be difficult to implement (for government, consumers, and exchanges), the budget announcement is welcome news for India’s emerging crypto ecosystem.

What reflects a budget?

The budget also defines virtual digital assets, a first for any policy or regulation in India. It also plans to launch a digital rupee developed by its central bank. These steps are interpreted as the first steps towards recognizing crypto assets in India.

The future of the crypto ecosystem has been uncertain since November 2021, when news reports indicated that potential legislation banning these assets was in the works. While crypto legislation is still expected to be tabled in Parliament this year, it is now likely to focus on regulation rather than outright prohibition. While the uncertainty has receded in light of the budget announcements, India’s crypto ecosystem’s job is only half done.

Radiance on all the three technologies

For the Indian (and global) tech developer community, crypto-assets herald a moment to transform the global internet ecosystem (I interviewed some of them in November-December). Cryptography is a means to an end – Web 3.0 or the decentralized Internet-based on blockchain technology. For simplicity, Web 1.0 generally describes the beginnings of the Internet – the interconnection of computer networks, up to the first browsers and websites until the 1990s. Web 2.0 intermediaries built applications in the next phase, and much of it was based on user-generated content. Intermediaries (Google, Facebook, Amazon, etc.) have exercised significant control in the era of Web 2.0 (and continue to do so). The idea of ​​Web 3.0 is to create software and platforms that are not dependent on traditional businesses and Web 2.0 business models such as advertising. For example, users can pay for services directly using tokens. In an ideal world, Web 3.0 services are expected to be operated, owned, and enhanced by communities of users.

Igniting Indian Developers Community

Going back to the point of the Indian developer community, their voice is virtually absent from the crypto regulation debate. Instead, exchanges, misinformed investors, mainstream bankers, and risk-averse government officials are deciding the future of a technology that could be the heir to the global Internet. It’s worth pointing out that not all tech communities buy into the whole Web 3.0 argument. This group includes Twitter’s Jack Dorsey and Tesla’s Elon Musk. They believe that Web 3.0 is mainly owned and pumped by venture capitalists (VCs) and that no noticeable real value has been created. Humanity. Others think Web 3.0 is just a smokescreen fired by “crypto bros” to evade regulatory scrutiny. Well, nothing says they could be wrong. This is what bubbles are made of when the vitality of a group of people drives the demand for an asset to irrational levels. However, what if they are wrong? And can India risk being on the wrong side of the prediction, especially when other countries approach the subject with more openness?

Indian Polygon – An envelope of tremendous potential

The India polygon is an interesting case study of the country’s potential. The rapid growth of the ecosystem is putting pressure on the most popular blockchains – Ethereum, increasing fees and high settlement times. Polygon, born in Bengaluru, offers a solution.

The Polygon was developed as a protocol and framework for building and connecting Ethereum-enabled blockchain networks that address the limitations above. Polygon is essentially a layer two solution of Ethereum, using its core technology to implement a robust and decentralized security model while being able to scale transaction and application volume beyond the capacity of Ethereum. More than 3,000 Web 3.0 applications and companies now use the Polygon network. It became part of the Bitwise 10 Large Cap Crypto Index (BITX), which tracks the returns of the ten most considerable crypto assets (Bitwise Asset Management, which manages the index, has assets under management (AUM) worth $1.5 billion). As of October 13, Polygon had a market capitalization of approximately $8 billion. By comparison, India’s largest stock trading platform, Zerodha, is valued at around $2 billion. This is, of course, an oversimplification, but it illustrates an important point. India can build many such polygons provided the country’s government keeps an open mind about crypto and Web 3.0.

The government has thrown a lifeline to the crypto and Web 3 ecosystem through the budget. Initial reactions to the tax announcements have been positive despite the high amount (apart from concerns over operationalizing it). The ecosystem must now rely more on this openness as the government prepares to introduce legislation in Parliament to regulate crypto assets. They will need to go beyond positioning these assets as a new avenue for investment but focus on the broad societal and technological benefits that the ecosystem can offer the country.

How do Crypto startups seek clarity on government operations in the 2022 budget?

Cryptocurrency and blockchain

Crypto-assets and blockchain are no longer a developing fad for investors or the government. Despite regulatory uncertainties, the number of local startups engaged in the sectors is increasing exponentially.

Startups and new-age companies associated with the industry seek clarification from Finance Minister Nirmala Sitharaman in the upcoming Union budget on taxation, legislation, exemptions, and regulations.

They are keen for Sitharaman to recognize the industry’s potential and define some clarity of operations to help their operations and growth in the future. The Minister of Finance will table the Union budget on February 1.

With over 15 million crypto investors, India has become the world’s second-largest crypto adoption player, followed by a massive increase in the NFT space and other startups.

The crypto industry has seen unprecedented growth in India, and the country is well-positioned to achieve global leadership if we ride the wave, said Amit Nayak – co-founder, CEO – SahiCoin.

Blockchain and cryptocurrency app development companies believe that India can become a significant player in the crypto market, the youngest nation with huge startup growth prospects.

“We believe and expect the government to take a progressive stance and help put in place a framework for wide adoption, safety, and responsible investment,” Nayak said.

There has been a continuous debate over the legalization of crypto assets in India for quite a long time, with the center mulling over a bill for the future course of action, which has now taken a step back for the time being.

Takeaways from the EU budget 2022

RBI to launch digital rupee using blockchain technology; income from crypto gain will be taxed at 30%

Indian Finance Minister Nirmala Sitharaman presented her 4th Union Budget today, February 1, 2022.

The 2022-2023 Union Budget focused mainly on four key areas, causing a significant push in education and finance. Crypto investors in the country have been waiting for clarification from the government on the recognition of digital virtual assets like bitcoin as legal tender. In her 2022-2023 budget speech regarding crypto, the Minister of Finance made a big announcement.

“To move forward on this parallel path, we set the following four priorities – Prime Minister Gati Shakti, Inclusive Development, Improving Productivity and Investment, Emerging Opportunities, Energy Transition and climate action,” FM said.

Investment section of the budget

The 2022 budget offered more light to the gray area of ​​the crypto space. The Indian government has viewed that it will treat crypto commodities as assets and not as currency. It is now pronounced that any transfer of crypto products from one person to another would be taxable. When it comes to such a transfer of assets, including the sale of crypto, income taxes would be levied. This budget stand will apply to all kinds of digital assets and NFTs.

RBI to introduce digital currency from 2022

After much patience and waiting, the Minister of Finance proposed introducing a digital rupee using blockchain technology. The same proposal to introduce a digital rupee by the central bank was also mooted earlier by the government and the Reserved Bank of India.

It is clear from the Minister of Finance that blockchain technology in the monetary system is efficient and cheaper. Therefore the government has recognized the need to introduce blockchain technology. The proposal to raise the CBDC by the RBI is a welcome move by the industry to catalyze growth and help mainstream crypto. This is a way to go, given the country’s digitization agenda regarding financial transactions. Using blockchain technology for the same provides better transparency and accountability.

How the crypto gain will be taxable income?

While RBI’s previous stance was to ban private cryptocurrencies, today, the Minister of Finance clarified that any income from the transfer of virtual assets would be taxed at 30%. This implies that the government seeks to regulate the industry rather than prohibit it.

Although the proposed standard tax is relatively high, direct taxation would legitimize the industry. This clarity was the need of the hour, so traders could now plan their trades accordingly. The proposed TDS also ensures that transactions are posted monthly, although this hinders intraday traders to some extent.

What else for you?

  • 30% applicable tax on profits from crypto trading

Profits made from the sale of crypto or NFT will be taxable at 30% tax without any deductions or exemptions. It would no longer be considered a short-term or long-term capital gain. There are also no minimum benefits provided for the exemption. Regardless of the size of the profit, it will be taxable below the 30% slab.

  • 1% TDS to record and monitor transactions

All crypto transactions will be taxed at 1% as TDS. This would be the government’s approach to monitoring all transactions in the crypto space. This approach might prove slightly drastic for intraday traders as they buy and sell on the same day and make many such trades. The same traders will also be required to pay 30% tax on profits. This will also affect the volume of transactions made in the crypto space in India. In the coming days, it might be a wrong move by the government to impose such a high TDS, given that some investors tend to trade for small profits, especially for intraday traders and investors—short term.

  • Gifts will also be taxable.

Gifts given to family or others were not taxable for fiat or any other traditional asset. Still, when it comes to crypto, crypto gifts will be considered for taxes, and the recipient will be liable for taxes. It is unclear whether the beneficiary must pay taxes given the cost of acquiring these assets or whether the total amount becomes taxable.

  • Losses from crypto trading cannot be offset by profits from other sources or vice versa.

Profits made from crypto will be taxable without any exemptions, but in the event of a loss of crypto, these losses cannot be offset against profits from other sources and vice versa. Crypto trading losses cannot be carried forward to the next fiscal year to be exempted from gains.

  • Won the following year.

To make it easier to understand the new tax rules, let’s look at the example below.
It fell in the same income tax bracket from the income of 5 Lakhs pa. Because if a person’s income is 4.5 Lakhs and the profit he makes from crypto is 60,000, the total taxable income would be 5.1 lacs which would be according to income tax slabs.

But with the new tax regime in place, the 60,000 crypto profits would be taxed directly at 30%, followed by the average slab-based taxes for the person’s income of 4.5 Lakhs.

There are multiple factors and excellent details explaining these calculations that need to be considered, and it can be more difficult to file the taxes, especially for intraday traders. This budget expected some relief, but the high TDS and high 30% taxes might make people more cautious when trading crypto.

Conclusion

India is moving towards regulation in the crypto space, making us one of the first to have code. These regulations may seem a bit burdensome for taxpayers, but they also indicate how volatile the crypto market is. It is high time for us to see how people react to this, and it would be interesting to know what the future of the Indian crypto space will look like.

Today’s government decision is a big step forward in bringing crypto to the masses. While crypto assets’ “legal” status may still be in question, progress can be seen through government recognition of the crypto asset class. Thus, the 2022-2023 budget gave the industry a big boost.

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