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Day 3 – Q 3. What are your views on the recent budget announcements on taxing transactions in cryptocurrencies? Substantiate your views. (15 Marks)

  • IASbaba
  • February 2, 2022
  • 0
Current Affairs, GS 3, Indian Economy, TLP-UPSC Mains Answer Writing
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3. What are your views on the recent budget announcements on taxing transactions in cryptocurrencies? Substantiate your views. (15 Marks)

क्रिप्टोकरेंसी में लेनदेन पर कर लगाने पर हाल की बजट घोषणाओं पर आपके क्या विचार हैं? अपने विचारों की पुष्टि करें।

Approach-

Candidates need to substantiate his views on budget announcements on taxing transactions in cryptocurrencies.

Introduction

The Union Budget 2022 has finally brought in a lot of clarity on how cryptocurrency will be taxed from Financial Year 2022-23. Removing all doubts on whether cryptocurrencies would become a legal tender or a medium of exchange in the future or not, the budget clarified that the Government of India doesn’t consider cryptocurrency as a currency, but shall treat it as a virtual digital asset. In other words, the Government of India would treat cryptocurrency as an investment.

Body

Taxing Transactions in Cryptocurrencies 

  • These clarifications about taxation of cryptocurrencies aka virtual digital assets, as the government wants it to be addressed, come at the right time. 
  • It especially becomes extremely important because around 10 crore individual investors have invested around Rs 6 lakh crore in various cryptocurrencies, as per the advertisement issued by The Blockchain and Crypto Assets Council which is a part of the Internet and Mobile Association of India. 
  • The taxing of ‘virtual digital assets’ or crypto currencies will help the Income-Tax department measure the “depth” of this trade in the country.
  • The income-tax department and the income-tax Act only looks at whether the transactions that you have entered into are resulting in income. 
  • Taxing crypto currency under the new legislation does not attach any legality.
  • When an entity declares any profit or surplus on the digital trade, then they also have to say where they have got the money to invest from and, if the investment is proper and justified, then the surplus will be taxed.
  • The taxation will also help us know if the investment is contaminated or illicit, if he/she is putting unaccounted income or it is a ‘benami’ of somebody else, then the consequences will follow.

Conclusion

The tax department is entering into the digital or virtual asset side at a time when the policy itself is being worked out so this is certainly the right time for the department to have entered the market. Only legislation will help us in knowing as to who is investing, how much is being invested, the quality of the investment, the nature of investment and whether people are making profits or losses.

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