India is preparing to regulate its cryptocurrency industry – in fact, it’s already there, and the country is introducing a 30% tax that will apply to investor capital gains. The levy will be rolled out in April and it will be the first time that a formal law has been passed to try and finally establish a clear-cut way of governing profits realized through the sale of digital assets and cryptocurrencies in particular.
New Tax Rate to Bound Digital Asset Gains
India has foregone plans to give up on crypto altogether and ban it, which was the fear in most of 2021. Instead, the country will now find ways to ensure that Bitcoin and NFT gains are taxed properly. Yet, the levy constitutes a significant percentage in an industry where gains can be sudden and even overwhelming, but losses can be equally financially debilitating.
As a point of reference, the stock market in India carries a tax levy ranging from 0 to 15% for short-term capital gains, allowing investors to have flexible financial mechanisms in their arsenal and benefit from the best options for their portfolios. Crypto investors though would need to satisfy much stricter criteria, adding more challenge to what they do.
On the plus side, the tax rate would only apply in those instances when an actual sale has been realized and has benefited the investor. That is to say that the selling party has made a profit – comparing the sale price to the buying price – along with other provisions noted down in the act. Investors would need to familiarize themselves in detail with the way taxation would work as well and be fully responsible for submitting their financial data accordingly.
Those looking to HODL their investments, though, may benefit the most. Purchasing a currency at a low price and then selling it, means that you would only be taxed on the difference. However, just like in the stock market, not selling means that you do not need to make any tax contributions.
Some Further Challenges to Sustainability
There are some issues with the proposed law as well, though. For starters, the measure will come with tax deduction at source, or TDS. In other words, every time a transaction is being made, the cryptocurrency exchange where the deal is brokered would have to retain a 1% fee which is then contributed to the state. This comes on top of any other mandatory levies.
In other words, investors would have to think carefully about moving and transacting cryptocurrencies as they would be gradually depleting their capital. This also goes against the grain of crypto investment, which is in nature more fluid with investors moving their capital in different crypto frequently.