Nirmala Sitharaman, India’s Finance Minister, has announced elaborate tax policies on transactions of digital assets in the Union Budget 2022. The government and the RBI (Reserve Bank of India) have been discussing ways to keep the booming trade in cryptocurrencies in check.
In the Union Budget for 2022-23, Sitharaman has proposed that income from transfer of any virtual digital asset will now be taxed at 30 percent with no deductions allowed for expenditure while computing such income, except the cost of acquisition. Also, any loss registered from the transfer of virtual digital assets cannot be set off against any other income while a 1 percent tax deducted at source (TDS) will be levied on payment above a specified limit for transfer of digital assets. Digital assets received as gifts will also be taxed at the hands of the recipient.
In the recent past, both the government and the central bank have expressed concerns over the unhindered growth of cryptocurrency transactions in the country on the back of fears of possible money laundering and terror financing through such transactions. Also, crypto trading, which often is highly speculative in nature, brings in the possibility of huge losses for investors. The government also proposed to bring about a bill to enact a regulatory framework for cryptocurrencies.
In a parallel move, Sitharaman has announced that RBI will soon issue India’s own Central Bank Digital Currency (CBDC) – the Digital Rupee.
Sitharaman did not tinker with the personal income tax structure but has tried to bring in more trust among the taxpayer and the revenue department by announcing a two-year window to the taxpayer to correct past mistakes in tax filing. Sitharaman pointed out individuals often make errors or omissions in their tax filing due to the large volume of financial transactions they undertake. Hence a new provision is to be added to the tax laws permitting an assessee to file an updated return on payment of additional tax within two years from the end of the relevant assessment year. This will come as a relief for taxpayers as it will cut down on disputes that often lead to adjudication proceedings or extended litigation.
Employees of the various state governments in India have been provided with tax relief on their contribution to the National Pension System (NPS) to bring them on par with the employees of the central government. The Finance Minister has proposed to increase the tax deduction limit to 14 percent from the earlier 10 percent on contribution to the NPS account of state government employees. The move will result in a social security net for all government employees.
Welcoming the move, Sumit Shukla, CEO, HDFC Pension Fund, said that besides strengthening the social security net it will result in a larger flow into the NPS. “Around 15 states, including Assam, Bihar, Punjab, Uttar Pradesh, and Uttarakhand, have already increased the employees’ contribution to NPS to 14 percent to bring it at par with the central government employees’ contribution. The move will help strengthen the social security net since all state governments will have to consider raising the employees’ contribution to NPS to 14 percent now. It is also beneficial for the pension fund managers (PFMs) like us as it will increase our AUM,” he said.
Sitharaman has also provided a proposal that allows the payment of annuity and lump-sum to the differently-abled dependents whose parents/guardians have taken insurance after they attain 60 years of age. Hence, this move assures the policyholders that their investment in insurance will be carried out without any unnecessary complications and worries.