India is set to introduce a new tax bill, replacing the Income Tax Act of 1961. The new reform aims to simplify tax filing processes but will tighten rules around cryptocurrencies and digital transactions.
Key Changes in the New Bill
A major alteration in the bill is treating undisclosed crypto assets as 'undisclosed income'. This could lead to penalties if individuals do not declare their crypto assets, similar to gold, jewelry, or cash. However, the government has reserved the authority to grant exemptions for specific digital assets, allowing room for policy changes in the future.
Impact on Cryptocurrencies
The new bill does not change the existing tax rates despite calls for relaxed crypto taxes. The 30% tax on crypto income remains, with no deductions apart from acquisition costs. TDS remains at 1% on all crypto transactions, making it impossible to avoid reporting. The introduction of this taxation model in 2022 led to a significant decrease in trading volumes on Indian crypto exchanges.
Overall Consequences for Taxpayers
Apart from crypto regulations, there are substantial changes affecting individuals and establishments. Once a taxpayer opts for the new regime, they cannot revert to the old one except under specific circumstances. For salaried individuals, this could mean losing out on deductions like HRA and medical claims. However, some businesses might benefit from corporate tax relief, though eligibility details are yet to be announced.
Spanning 622 pages, this is one of India's biggest tax reforms. It replaces outdated terminology, introduces a 'Tax Year', establishes a Taxpayer's Charter to ensure transparency, and sets new tax rules for foreign companies based on residency conditions. The Finance Ministry is also working on detailed policies for virtual digital assets, laying the groundwork for future policy decisions.
