Cryptocurrency Obtains Partial Legal Status In India But There’s A Darkside To It
- India is beginning to warm up to cryptocurrencies as it has been given validity under the law.
- India’s new cryptocurrency rules put digital assets in the highest cadre of taxation.
- Although the taxes on cryptocurrency are massive, analysts believe that it signals progress.
The country with the second largest population in the world is opening its doors to cryptocurrencies after years of ambiguity. Traders of the assets class should be prepared to pay a tax of 30% for the transfer of these digital assets.
Crypto Comes To India
A wave of excitement swept across India and the wider cryptocurrency ecosystem with the announcement that cryptocurrencies would be recognized by the government. The announcement was revealed by the country’s Minister of Finance Nirmala Sitharaman in her budget speech at the start of February as the country plotted a 30% tax rate for the asset class.
“Imposing the tax rate makes crypto trading official now and any concern of a ban is off the table,” said one analyst as the Indian investors heaved a sigh of relief. Before the Minister’s announcement, the Indian government and cryptocurrencies have had a rocky relationship marred by the threat of outright bans.
However, the Minister’s declaration has given the asset class a semblance of legitimacy. Despite the frosty relationship, Indians have increasingly turned to cryptocurrencies as a hedge against inflation and a means to improve cross-border remittances.
“There’s been a phenomenal increase in transactions in virtual digital assets and the magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime,” said the Minister. The declaration is historic because a few months ago, the country was mulling over an outright ban of cryptocurrency and jail time for defaulters.
True to Sitharaman’s words, cryptocurrency growth in India has spiked by a staggering 641% in under a year, according to data gleaned from Chainalysis. India’s cryptocurrency investors are drawn by the allure of Bitcoin, Shiba Inu, Dogecoin, and Ethereum while Play To Earn games are taking a strong foothold in the country. There has also been a spike in the number of exchanges that are operating in the country including local and international exchanges. Analysts hypothesize that there are around 20 million crypto investors in the country with assets of around $5 billion.
Grave Concerns For Indian Investors.
Since the announcement broke, the cryptocurrency market cap has inched forward in valuation as Bitcoin climbed by 1.69% in a matter of hours. Ethereum on the other hand soared by as much as 5.16% while Solana is basking in the highs of 12.92% in 24 hours,
Despite the joy, there is concern that the new tax rate applicable for digital assets is exorbitant and payable fees could eat into the profits of investors. According to Amit Maheshwari for AKM Global, investors will have to grapple with the 30% tax, surcharge, and the total tax outgo.
“30% tax on income from virtual digital assets, while high, is a positive step as it legitimizes crypto,” said Avinash Shekhar, ZebPay’s CEO. He added that it would provide banks clarity and allow them to provide services to cryptocurrency companies. The hearts of crypto investors were broken by the comment from Minister Nirmala Sitharaman that the losses from the sale of crypto could not be used to offset other incomes.
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