Quick take:
- India on Tuesday announced plans to launch a digital version of the rupee by next year.
- The country also said it will introduce a 30% tax on the transfer of virtual assets, including NFTs.
- Finance minister Nirmala Sitharaman said no expense deduction shall be allowed except the cost of acquisition of the asset.
India on Tuesday announced plans to introduce a capital gains tax on virtual asset transfers, legally recognizing NFTs. The country also said it plans to launch a digital version of the rupee in its next budget year (2022-2023), which incidentally starts on April 1.
The Nation’s Finance Minister Nirmala Sitharaman said the crypto tax will not be subject to expense deductions except for the cost of acquisition.
India’s current short-term capital gains tax on the sale of publicly listed securities is 15%, with securities held long-term taxed at 10% if sales exceed 100,000 rupees.
Therefore, the 30% tax rate proposed for virtual asset transfers is substantially higher than the capital gains tax applied on shares. Analysts think this is partly to try to encourage people to invest in more stable and predictable assets like shares rather than speculating on cryptocurrencies and NFTs.
Although India has opted to legalize cryptocurrencies rather than take the path taken by China and issue an industry-wide ban, experts believe the government will introduce strict regulations. The current taxation plans could be part of the measures put in place.
Sitharaman also said that if a seller incurs a loss from the sale or transfer of a virtual asset, the loss cannot be offset against other sources of income, adding that virtual digital assets received as gifts will also be subject to taxation at the proposed rate.
Cryptocurrencies have continued to gain traction in the Asian nation, with some startups like Chingari targeting the non-fungible token (NFT) space. The short-video streaming app recently launched the $GARI token, receiving global attention and mentions from some of the leading financial news platforms.
The minister also proposed a blanket 1% tax deduction at source for all crypto transactions that reach a yet to be defined threshold.
The Indian fintech market is one of the fastest-growing in the world, attracting several venture capital firms. The GameFi and NFT space has recently started to attract foreign venture capital firms, an important ingredient ahead of the highly anticipated legal recognition.
Reports suggest that the new crypto and NFT tax laws could become effective as early as April 1, when the 2022-2023 budget year begins.
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