Earlier this month, while presenting the Budget speech, Finance Minister Nirmala Sitharaman caught everyone off-guard with her announcement of levying a 30 percent tax on any income from the transfer of virtual digital assets. Specifying that no deductions and no exemptions will be allowed, the government stated that the Income-tax return form next year will have a separate column to declare gains from crypto.
However, the announcement soon created a fake narrative that the government had finally legalized cryptocurrency as a legal tender. And before the glory hunters of the finance world unfasten their seat belts and misguide the naïve investors, let us make it clear in concise terms — “cryptocurrency is still an illegal tender in India”
As a matter of fact, it will not be legal for the foreseeable future. However, the caveat is that the government is not stopping one from trading in it. The investor can still pump money in crypto, but they will have to pay the tax on it, and they cannot use it for financial transactions within the Indian borders.
If cryptocurrency is your income, you pay tax
In layman’s terms, the government is simply treating the earnings from cryptocurrency just the same as winnings from gambling. And as we know, gambling in India is still illegal. However, if someone makes a trade overseas and shows the income from it, they will have to pay the desired tax on it. The government has applied the same parameter to cryptocurrency.
The government is treating the gains made from crypto as your income and Section 2(24) of the Income Tax Act, 1961 describes how the tax is levied on your income.
“Any kind of income earned by the assessee attracts income tax at the point of its accrual or receipt. Of course, statutory exemptions and deductions as permitted under relevant provisions of the Act, which could be availed of by a taxpayer. However, the fact remains that the Act makes an obligation to pay tax on all income received.”
Tax is levied on income – both legal and illegal
Similarly, when any income is made from illegal means, in this case, cryptocurrency, the government is perfectly within its rights to tax the source of the income. The law asserts this succinctly by remarking that the state cannot allow the party to get away without sharing the ill-collected wealth.
“The assessee having acquired income in an unethical manner or by resorting to acts forbidden by law cannot be heard to say that the state cannot be a party to such sharing of ill-gotten wealth. Allowing such income to escape the tax net would be nothing but a premium or reward to a person for doing an illegal trade. It is not possible for the income tax authorities to act like police to prevent the commission of unlawful acts but it is possible for the tax machinery to tax such income.”
The citizens need to understand that the taxation system does not only work with legal sources of income. It is not a binary system where the rules are framed in black and white. The grey area exists, and law is different from morality. You made a profit, you made an income, you got caught, you will face the music, but you will have to pay the tax. It is as simple as that.
Read more: The dark side of Cryptocurrency that nobody is even thinking about
What did Sitharaman and the government say?
Sitharaman in her speech had remarked, “Any income from virtual digital assets is taxable at 30 per cent. There will be no deduction with exception of the cost of acquisition. The TDS is applicable beyond a specified monetary threshold, and the gift of virtual currencies is taxable in the hands of the recipient.”
Clearing the government’s stance on the legality and illegality of the cryptocurrency, Finance Secretary TV Somanathan, a couple of days after the budget was quoted as saying by PTI, “Crypto will never be a legal tender. Legal tender means by law it is accepted in settlement of debts. India will not be making any crypto asset as a legal tender. Only ‘Digital Rupee’ of the Reserve Bank will be a legal tender in India,”
RBI perceives cryptocurrency as a threat
As reported by TFI, the RBI is looking to launch Central Bank Digital Currency (CBDC), a programmable currency with a variety of use cases, especially for MSMEs. RBI Governor, Shaktikanta Das, in a firm manner has stated that private cryptocurrencies are a threat to the financial security of India.
Das said, “As far as cryptocurrencies are concerned, the RBI stance is very clear. Private cryptocurrencies are a big threat to our financial and macroeconomic stability. They will undermine RBI’s ability to deal with issues related to financial stability.”
He further added, “I think it is my duty to tell investors that when they are investing in cryptocurrencies, they should keep in mind that they are investing at their own risk. They should keep in mind that these cryptocurrencies have no underlying (asset)… not even a tulip,”
Read more: Cryptocurrency is a threat to Indian financial institutions
The government is keeping its options open
It’s not to say that the government is only bringing gloom for crypto investors. It has already toned down its hardline stance from a complete ban on cryptocurrency to recognizing it as an income source for investors. The government has come close to presenting the draft bill on cryptocurrency in the parliament on two separate occasions in the past. However, owing to the complexity of the situation, the draft has needed revisions.
Except for El Salvador, which in September last year adopted Bitcoin as legal tender, no other country across the planet has made crypto a legal tender. Thus, asking the Indian government to legalize it at the drop of a hat is a naïve proposition. The government is keeping its options open and as more clarity regarding the framework of the cryptocurrency develops, it may come up with new guidelines and regulations.
