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Is Digitization Always The Better Option?

According to the Economic Times, a rough number of 20 million joined the crypto market in 2021. Cryptocurrency, or digital currency, have become frequently used topics in the Indian investor’s vocabulary. Currently, Indians hold digital currency assets worth $5.3 billion. Founder and CEO of KoinSwitch Kuber — one of India’s leading digital exchange platforms — Ashish Singhal said, “We've come a long way in 2021. We started this year with just about 1.5 million registered users and crossed 14.5 million users by the end of the year.” In spite of the crashes that the market witnessed in 2021 in the months of May and December, people continued to invest in crypto, driven by the desire to make large profits.



Nirmala Sitharaman declared the Union Budget for Fiscal Year 2022-23, on February 1st, 2022. One of the monumental changes announced was the imposition of 30% tax on income from transfer of virtual digital assets. It was also announced that there will be no deduction for expenses other than cost of acquisition. Much to most investors’ dismay, there will be no set off of losses.


Introduction of this tax provided confirmation to several investors regarding the Indian government’s stance on Cryptocurrency. “The biggest development today was a clarity on crypto taxation. This will add the much needed recognition to the crypto ecosystem of India. We also hope this development removes any ambiguity for banks, and they can provide financial services to the crypto industry. Overall, it's good news for us, and we will need to go through the detailed version of the budget to understand the finer details, ” Nischal Shetty, Founder and CEO of Indian cryptocurrency exchange WazirX said.


The 30 percent charge, according to Ashish Singhal, founder and CEO of CoinSwitch, is a bit too ambitious, he told CNBC on Thursday. However, he added that it was still a good move as it removes some of the ambiguity around the Indian government's policy on virtual currency that has been present in the previous months. “One of the major benefits of crypto for India has been the opportunity it gave to young investors. The tax allows no offset on losses, which might disincentive new investors,” said Tanmay Todi, an article at PricewaterhouseCoopers. While the government did impose tax and legitimize digital currency, it has still not accepted it as something that can be exchanged for goods or services. “Crypto and other fungible tokens have been recognised by the government, but there is still no provision of using it for exchange from your wallet,” added Tanmay.


The tax imposed is at par with that which is imposed on speculative activities such as gambling, lotteries, etc. In the Economic Times CEO and founder of CoinDCX Sumit Gupta said, “Cryptocurrency is an asset, and a product of investment. Trading in crypto requires a particular skill-set that cannot be compared with gambling. The tax rate should have been the same as other investment assets. The proposed 30% tax might hamper wider adoption.”


Taxation on virtual assets provides a more stable ground to those involved in trading in crypto. However, the dishearteningly large chunk of tax deduction might lead to an increase in the tax burden borne by crypto holders. The market might witness short term fluctuation due to the changed policy, but in the longer run, it is still expected to continue growing at an exponential rate. A question that arises here is if the budget was designed for India to move in the direction of digitization, why is the deduction rate so high? The risk of loss and having to shell out a third of their returns towards taxes, might discourage those that are just starting out as investors or are beginners in the virtual currency market.


Like every policy, this one has its pros and cons. It can not be segregated into black or white. Cryptocurrency has gone through a gargantuan boom in India, the recognition it has gotten by the government recently might weigh more than the tax amount, leading to a continuation in growth. On the other hand, it might keep new people from entering the market and force others to exit. We can only hope that it leads India to its “Amrit Kaal” as a digital economy.




















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