The news that the government will tax capital gains from sale of crypto assets produced a wave of enthusiasm that cryptocurrencies will be recognized and regulated, instead of getting banned. However, the Central Government has still not clarified its position on the matter and will not hurry to do so, as a thoughtful consideration is necessary, Union Minister of Finance Nirmala Sitharaman stated during her recent one-week long visit to the US.
“It has to take its time for all of us to be sure that at least, with the given available information, we are making a discerned decision. It can’t be rushed,” FM Sitharaman said while visiting Stanford University in California. “There is impatience outside saying what are you doing about crypto… I understand the impatience but I’m sorry, that’s how it is going to be,” she added.
The Minister of Finance stressed that the Central Government has the willingness to promote innovation and technological progress associated with blockchain, but there are certain concerns. Despite all their positive aspects, cryptocurrencies can also be used for undesirable purposes, including money laundering and funding of terrorist activities.
The Centre’s plans to tax profits made from cryptocurrencies and NFTs (non-fungible tokens), grouped under the heading of Virtual Digital Assets (VDA), were first announced by the Finance Minister during her FY2022-23 budget speech in the Rajya Sabha in February.
In March, the Lok Sabha voted on the concrete rules for the new levy on VDA within the 2022 Finance Bill. An income tax of 30 percent, effective from the start of the new Financial Year – April 1, is applicable over the full capital gain made from VDA sales. No deduction of other costs other than the price of purchase is possible, and if the sale is done at a loss, it cannot be set-off against any other profits.
A further TDS (tax deductible at source) at the rate of 1 percent will become effective from July 1 on all crypto transactions above ₹10,000, but will also be applicable if the annual turnover exceeds ₹50,000. The paid TDS can be deducted from the income tax obligations.
The new taxation rules on profits from virtual digital assets place them in the same bucket with earnings made from online gambling, which are taxed at the same rate of 30 percent and losses cannot be set-off against profits derived from any source. The similarities do not end here though, as gambling is in the same situation with crypto trade – winnings are taxed, regardless if the gambling activity is legal or not, but it is yet unclear whether it will be regulated.
Experts in the field of online real money gaming think that both fields urgently need to be regulated, but expect regulation on crypto to come first and pave the way for gaming and gambling policy codification.
“Crypto regulation can be the stepping stone towards seeing proper gambling regulation similar to that of Sweden, the UK, Italy. No vague definitions of “skill” versus “chance,” just simple regulation that demands transparency, fairness, and care towards its gamblers,” Felicia Wijkander, Chief Editor at India’s biggest casino comparison platform states.
“Because while taxation on crypto solves any profit “leakages” in India, it doesn’t solve the addictive behaviors that a volatile crypto market brings. Cryptocurrency apps don’t have “responsible trading tools.” It’s not possible to self-exclude yourself or set limits on sessions, losses, profits, or deposits,” Wijkander adds.
Comprehensive Responsible Gaming tools have been developed and offered by reputable online casino platforms for many years now, and if made mandatory by law, such mechanisms could significantly lower the societal costs of gaming to acceptable levels.
“The momentum from crypto should absolutely be used in order to make progress towards a more liberal and educated online gambling landscape in India,” Wijkander concludes.
On April 1, an Online Gaming (Regulation) Bill, 2022 was proposed at the Lok Sabha with the aim to regulate the sector and curb illegal gaming activities in India.
The Bill envisages the creation of a central Online Gaming Commission and a licensing regime for gaming websites and servers. The Commission will be mandated to elaborate the rules pertaining to online gaming and to grant, suspend and revoke licenses.
The proposed bill, if adopted, can surprise the experts who expect crypto regulation to arrive faster than gambling legalisation.