If that’s not exactly a full stop, the Indian government’s decision to tax Virtual Digital Assets (VDAs), including cryptocurrencies, is definitely a comma for the entire crypto fraternity. This largely unregulated space fell under the tax in this year’s budget. And while the crypto lobby might rejoice, thinking the government is stepping up its efforts to grant some kind of recognition to VDAs, the truth is that no such legislation to regulate cryptocurrencies has yet been released. . At this point, it is natural to wonder if investing in cryptocurrency is still a good option? Are there better alternatives that investors can explore and get a better return on investment (RoI)?
What has changed for cryptocurrency investment in the Indian ecosystem?
Many investors, big or small, young or old, started investing in cryptocurrencies and other VDAs because the space was unregulated and offered huge returns. Investing here was extremely risky but came with unparalleled returns that appealed to most new-age investors. Plus, it was completely tax-exempt. However, by placing VDAs under the Indian tax regime, the government has taxed crypto income higher than equity investments without offering any benefit. Obviously, the government is trying to curb speculative trading in this space. Suffice to say that cryptocurrency has lost its unconventional but very lucrative charm.
Why is the new tax demotivating crypto enthusiasts?
Simply put, the Indian government is telling the crypto lobby that if you profit from a token, automatically 30% of its discount will be deducted as tax. Also, if you make losses in one token and profit in another, resulting in an overall loss, you still have to pay a 30% tax on the profitable asset to the government. There will be no compensation for losses. In addition, a 1% tax will be deductible at source. As an investor, you must treat each virtual asset as an individual entity for tax purposes. Not very encouraging, is it?
If not crypto, what can be a viable investment option?
Unlike cryptocurrencies, where many people invest out of fear of missing out (FOMO) and overwhelming publicity, investment options should not be driven by emotions but by a strategic approach. At this point, where crypto and other VDA investments are proving very uncertain and not exactly a profitable option, investors should look elsewhere.
At present, alternative options such as real estate, hedge funds, crowdfunding, peer-to-peer lending (P2P) and commodities are proving to be very rewarding. While the crypto market is very volatile (recall back in March 2021, when rumors that India was considering a ban on crypto holdings started circulating, bitcoin losses accelerated dramatically), these investment options offer relatively stable returns.
Plus, if you’re looking for long-term gain, backing an up-and-coming startup might be a much more lucrative investment idea than going down the cryptocurrency path filled with unstable and unfamiliar parameters.
In a word
The bubble surrounding VDAs, including cryptocurrency, is gradually losing its exclusivity. The heavy taxation of VDAs indicates that the government has no plans to encourage this sector. At least not in a way the crypto fraternity expects. Therefore, it is best for new investors as well as old investors to research other investment options and make informed decisions regarding their future investments.
The opinions expressed above are those of the author.
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