Crypto conundrum of Budget 2023

CHENNAI: A recent analysis pegs India’s cumulative trade volume in virtual digital assets (VDA) changed by Rs 32,000 crore between February and October 2022. We expected that in the 2023 budget, the government would alter VDA taxation, thereby reducing tax burden and eliminating uncertainties. But sadly we are still holding last years baby! In fact gains from offshore cryptocurrencies and VDA have now been taxable in the budget tabled on Feb 1, 2023.

Non compliance can land you in the dock for upto 7 years and a fine of 10 lakh! I would seriously suggest not to use offshore to avoid TDS or tax deducted at source.

If you invest in a cryptocurrency, you might face penalties under section 271C of the income tax act.

Now, VDA taxes impact both residents and non-residents. Without a clear set of criteria to identify when NRs in India become subject to taxation, it has now become critical to understand the status of VDAs, especially when they are exchanged via or sold to Indian citizens.

Clear standards in this sector are required to dispel the notions and promote international investment.

In the modern digital age, there should be room for uncertainty due to the lack of a clear definition and prescribed valuation method for determining the cost of acquisition (CoA) of virtual currency assets, particularly when these assets are given as gifts, bartered for goods and services, used as employee incentives, given as prizes in the gaming industry, or produced through mining or stacking.

Another onerous aspect of VDA taxation is the fact that only CoA can be deducted, disregarding other costs directly associated with the transfer of VDAs (such as exchange fees, transaction costs, etc.), and that losses incurred during the transfer of VDAs—even at the inter-source or inter-head level—cannot be offset or carried forward. It would be a good idea to make the proper changes to the taxation regulations related to these difficulties.

The 20% TCS (tax collection at source) will also prove detrimental in the long run. Even though TCS can be claimed after filing income tax returns at the year end, it seems unlikely investors wait out for a year before applying for possible refunds.

Many Indian customers buy crypto assets using international credit cards or cash transfers.

The TCS has now been raised to 20%, which will result in a large reduction in this. This makes every cash transfer under liberalised remittance schems (LRS) liable to 20% TCS.

For instance, if a user wants to purchase $100 worth of cryptocurrency, they will need to pay $20 in TCS.

This will drastically cut down on Indians’ direct purchases of cryptocurrency abroad.

This will adversely affect all platforms offering global stocks and international crypto exchanges. I see another flight of funds and companies as plenty of more lucrative options present themselves and unfriendly and asymmetrical policies and diktats will push investors to the brink impacting the entire crypto ecosystem.

Exchanges in India, already reeling under immense pressure will need to pull a rabbit out of the hat to stay afloat - innovation will now kick in after years of complacency.

With India now holding the G20 summit’s chairmanship, there are expectations that the nation will work to create an ecosystem that is more supportive of cryptocurrencies in general. It’s time to introspect.