From Sitharaman's Budget, crypto players are hoping for clarity on taxes and regulation.

Finance Minister Nirmala Sitharaman, who will present the Union Budget on February 1, has great hopes for the crypto economy, which is treading a fine line or is genuinely functioning in the grey area of legality and laws.

From Sitharaman's Budget, crypto players are hoping for clarity on taxes and regulation.

New Delhi, India:

Finance Minister Nirmala Sitharaman, who will present the Union Budget on February 1, has great hopes for the crypto economy, which is treading a fine line or is genuinely functioning in the grey area of legality and laws.

There is currently no legislation, act, or regulation in India that governs, regulates, or prohibits dealing in crypto assets.

As a result, it is legal to sell, buy, trade, or mine cryptocurrencies in the country, as well as to open a cryptocurrency exchange.

The demands of industry players, investors, and other stakeholders, on the other hand, are likely to reach the government, which may finally pay attention to dispel the clouds of ambiguity and point the way forward for the future.

It was previously predicted that a Bill would be submitted in Parliament's winter session to ban or regulate crypto assets. However, the same was not implemented, and now all eyes are on the first day of the following month.

The most important thing to expect from the Budget is clarification on the legal classification of cryptocurrencies for tax purposes.

According to Purushottam Anand, Founder, Crypto Legal, the tax status of cryptocurrencies under income tax and GST will differ greatly depending on whether they are classified as a commodity, service, security, asset, or currency.

"Most of the tax concerns will be resolved once cryptocurrencies are established in law, putting an end to any suspicions about their legal character," he added.

GST will also clarify whether the sale of crypto property is classified as a sale of goods or intangible assets, or as a sale of proprietary property or services subject to 18% GST.

The government's intention to regulate and supervise crypto-investments, if not outright ban, crypto-investments appears to be evident. India currently has the most cryptocurrency owners in the world.

According to a recent survey conducted by Nasscom and WazirX, India's cryptocurrency sector has grown at an exponential rate in recent years. By 2030, it is anticipated that Indians would have invested $241 million in cryptocurrencies.

Amit Singhania, Partner at Shardul Amarchand Mangaldas and Company, believes the next Finance Bill would include strict reporting rules for crypto-investments.

"The Finance Bill, on the other hand, will address existing problems concerning crypto-taxation by adding more formal and definitive measures for taxation of crypto-currency revenue," he added.

Following the Budget 2022 announcements, measures relating to non-resident taxation, significant economic presence standards, and tax withholding duties will be implemented by circulars or notifications, according to experts.

The Budget 2022 proposal is expected to include a 'explain provision' to clarify the term capital asset under section 2(14) of the Income-tax Act, 1961, according to Ravi S Raghavan, Partner Tax, Majmudar & Partners International Lawyers.

"A taxpayer's crypto property will be liable to tax in India based on whether they intend to hold it as investments, which would be taxed as capital gains, or as commerce, which will be taxed as business income," he added.

Tax experts agree that the government would likely take severe measures to ensure that crypto assets are properly reported on tax returns.

A taxpayer must record transactions as business income if held as stock in trade or capital gains if held as investments and any failure to do so will result in interest and penalties.

According to Raghavan of Majmudar & Partners International Lawyers, the tax return forms for the period ending March 31, 2023, will be changed in due course.

Many experts have advocated a 30% tax rate on cryptocurrency earnings, like the taxation of winnings from lotteries, game shows, or puzzles. However, not everyone shares this viewpoint.

According to Anand of Crypto Legal, there is no basis for such harsher tax treatment of crypto income.

"Because of the current volatility in the pricing of cryptocurrencies, income from cryptocurrencies should not be equated with income from lottery or riddles," he noted.

Existing acts and legislation to be amended?

The taxes of crypto assets, as well as the rates of short- and long-term capital gains levied on them, may be addressed in Budget 2022.

According to Singhania of Shardul Amarchand Mangaldas, provisions of the Revenue-tax Act, 1961 dealing with the definition of capital assets, capital gains taxation, and speculative business income are most likely to be modified.

He continues, "We may also see TDS/TCS requirements to track or capture the said transaction in the tax net." In the forthcoming Budget, crypto exchanges will be subject to additional reporting obligations.

The Budget may also provide some guidance on the tax treatment of Peer-to-Peer (P2P) transactions, in which users purchase or sell cryptos among themselves using a specific crypto exchange. The technique has recently acquired popularity.

According to Raghvan, once crypto assets are subject to taxation or if new age investments are regulated by a new Bill, various laws and acts will need to be amended.

The Securities and Exchange Board of India Act, the Companies Act, the Foreign Exchange Management Act, the Income-tax Act, the Securities Transaction Tax, the Goods and Services Tax, the Sale of Goods Act, and the Banking Regulation Act, 1949 are all instances of this.