Cryptocurrency tax provisions were introduced at a time when the global market was already experiencing steep losses, which impacted trade volumes.
Can India’s business still be considered safe amid a Cryptocurrency winter and tax rules?
In the past few years, Indian investors have readily accepted cryptocurrency investments as great investments. All these years, cryptocurrency trading volumes have reached millions in India in just a few hours.
Governments and central banks have always had reservations about these digital tokens, fearing that cryptocurrencies would have a severe negative impact on India’s economy and aid in criminal activities.
The government’s unfavorable attitude toward cryptocurrency led it to include a new section under the Income Tax Act for taxable income from virtual digital assets, which will be taxed at 30% and charged 1 percent TDS.
While the crypto world witnessed a prolonged onslaught amid the Russian-Ukrainian conflict, both of the tax provisions were inserted at a time when the markets were preparing for a long winter.
MAJOR DECLINE IN THE TRADING VOLUME IN INDIA
In India, investors quickly pulled out of cryptocurrency investments due to this double-edged sword. The Indian trading market has suffered over the past few months, with investors refusing to invest in an asset that will be taxed so heavily and experiencing a crash.
Income from the transfer of any virtual digital asset (VDA), has become taxable at 30% under Section 115BBH of the Income Tax Act.
According to News18.com, Aditya Chopra, managing partner at Victoriam Legalis – Advocates and Solicitors, “this development along with the introduction of a 1 percent TDS have made current and potential cryptocurrency traders and investors wary of substantial tax liabilities associated with cryptocurrency trading and investment.”
In India, new tax rules could block the liquidity necessary to revive the bear market. Since cryptocurrencies are decentralized, the tax rules will increase the regulatory and compliance burden.
They may also prevent liquidity needed to revive the crypto markets, said Archit Gupta, founder, and CEO of Clear.
ARE CRYPTOCURRENCY INVESTMENTS SAFE?
Since the government implemented the 1% TDS provision in India, trading volumes have decreased steeply, and crypto investors may wonder if these assets can still be considered safe.
We will need to examine basic investing concepts such as to kenomics, token utility, risk-return tradeoffs, and asset diversification before we can answer whether investing in crypto is still safe.
By doing so, investors can avoid throwing caution to the wind and make calculated investment decisions. News18.com reported that investors can also invest in them through shares of companies that have stakes in blockchain technology or other cryptocurrencies.”
It is imperative to have regulations as they will only help secure investors’ money given how many people invest in crypto with little to no knowledge and more influence,” he said.
Cryptocurrencies have been a volatile and risky investment since January, and experts agree that it is not a ‘safe’ investment option. The value of Bitcoin, for example, has reached $21,000 as of right now. In October 2021, this same crypto coin reached almost $69,000, which was a new high.
The dip in cryptocurrency trading volume may have investors reassessing their investments. Rishi Anand, the partner at DSK Legal, noted that cryptocurrency risks and volatility are not new.
Given the volatility and risk in the cryptocurrency market, more or less, ever since, Chopra noted that cryptocurrency trading or investment has not been banned or declared illegal by law, even though investments may or may not be safe from a market price perspective as of today.