Quote by Probir Roy Chowdhury, Partner, J Sagar Associates (JSA) on Finance Bill 2022

“While many in the cryptocurrency industry initially welcomed the inclusion of ‘virtual digital assets’ in the Finance Bill, 2022 (“Finance Bill”) – heralded as the government’s implicit acceptance of cryptocurrency, a deeper look at the Finance Bill demonstrates the government’s reluctance to encourage growth in this space. The Finance Bill seeks to impose a flat tax of 30% on cryptocurrency gains. While this would result in a 5% increase in tax payable by companies in trading in cryptocurrency, this would more significantly affect smaller ‘retail investors’ who may be in lower tax brackets or have been relying on lower capital gains tax rates. The Finance Bill also imposes a 1% TCS on payments to Indian residents for cryptocurrency transactions. This TCS will result in a drop in liquidity, as the TCS would be imposed regardless of profit or loss. The volatility of many cryptocurrencies has created a burgeoning community of high frequency traders, who will be significantly affected by the drop in liquidity on each trade. Finally, the biggest setback to the Indian cryptocurrency industry is the Finance Bill’s prohibition of setting off losses in one cryptocurrency against gains from another. Such a move could cripple the industry and severely affect traders who rely on hedging to ensure risk mitigation in their investments. Crypto players need to present a united front and challenge these overbearing provisions. Trading in crypto/virtual digital assets in not akin to gambling and this distinction needs to be made clear.” Probir Roy Chowdhury, Partner, J. Sagar Associates (JSA).