CRYPTOCURRENCIES

TOPIC: Science & Tech

Context- In her Budget speech, Finance Minister Nirmala Sitharaman introduced a 30% tax on income earned from transfer of virtual digital assets.

Concept-

The Government is yet to recognise cryptocurrencies, including Bitcoin and Ethereum.

What would be the tax component for income from virtual digital assets?

The Budget has proposed a 30% tax on income from the “transfer of any virtual digital asset.”
Secondly, except for the cost of acquisition, no deduction will be allowed.
Thirdly, losses from such transfers cannot be set oﬀ against any income.
Fourthly, tax will be deducted at source at the rate of 1%, so as to capture transaction details, thus initiating a tax deducted at source (TDS) mechanism.

What has been India’s approach to cryptocurrencies?

The Government and the Reserve Bank of India have in the past cautioned people against considering cryptocurrencies as legal tender.
The fact that transactions using such currencies can easily bypass the tax net, and therefore be used for illicit transactions.
The Reserve Bank of India, in 2018, directed banks not to provide services to the cryptocurrency ecosystem.
A 2019 report by an inter-ministerial committee which recommended a ban on all cryptocurrencies.
A separate process of consultation is underway regarding their regulation- A bill on this would be tabled in Parliament.