[Budget 2022] Transfer of virtual digital assets to be taxed at 30pc: Nirmala Sitharaman

During her Union Budget 2022 speech today, Finance Minister Nirmala Sitharaman said income from the transfer of any digital assets will be taxed at 30 percent.

Although the minister did not directly refer to cryptocurrencies as virtual digital assets, it is likely that crypto tokens will be taxed at a flat rate of 30 percent.

She added there would be no deduction possible in any expenditure or allowance while computing income from transfer of digital assets, except the cost of acquisition.

"Loss from transfer of virtual digital assets cannot be set off against any other income, and gifting virtual digital assets will be taxed in the hands of the recipient," she said.

Last year, a report by blockchain data platform Chainalysis ranked India second in terms of global crypto adoption amidst global crypto adoption rising over 880 percent.

In the report titled 'The 2021 Global Crypto Adoption Index', Chainalysis ranked India just behind Vietnam, which took first place out of 154 countries surveyed.

Noting the rise in transactions in digital assets in India, Sitharaman said a specific tax regime is required for this segment, and went on to propose the 30 percent tax regime.

Earlier in the session, Sitharaman revealed the government has also proposed to introduce "a digital rupee using blockchain and other technologies issued by The Reserve Bank of India (RBI), starting 2022-23."

Cryptocurrency, which is also powered by blockchain technology, has long aspired to act as digital currency, but it is increasingly seen as assets for investment or tokens for performing transactions on blockchains.

CBDCs, in contrast, are meant to be used as digital currency. For instance, the digital currency equivalent of INR could theoretically be used as legal tender to make payments, and transactions will be recorded on a digital ledger.

The digital rupee will be a Central Bank Digital Currency (CBDC), and Sitharaman said it will "give a big boost to the digital economy." Such a digital currency would lead to an efficient and cheap currency management system, she added.