Cryptos as Pension Funds: Exploring the Indian Crypto Tax System
After the integration of the crypto tax, can Indian retirees harness cryptos as pension funds in the future?
Click on the Net and you find many sites displaying crypto tax calculators. Continue clicking, there are many more on ‘everything you wanted to know about crypto tax in India’ and even ‘how to avoid tax on cryptocurrency in India’. All this indicates that gone are the days when in India cryptocurrency would be treated as ‘illegal’ and holding cryptocurrencies will be a hidden act for most. The important question in such a background and at this moment is how practical will it be to hold cryptos as pension funds.
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In the Government of India budget for 2022, the Finance Minister, Nirmala Sitharaman, announced that beginning from 1 April, India will tax all “virtual digital assets” at 30%. This has led to a concern among analysts that the 1% TDS, which is to be applicable to every single transaction involving crypto will be problematic apart from the fact that such heavy crypto tax incidence will come in the way of greater investment in cryptocurrencies. While analysts will go on scratching their heads on such issues, the fact is that such rules are going to stay for some time and as of now there is little scope for reversing them. Thus, crypto investors must think about cryptocurrencies as pension funds in the nearby future.
One thing is for sure, with such announcements, however ‘problematic’ they may seem to cryptocurrency investors, cryptocurrencies are no longer ‘illegal’. While there is an argument that having imposed crypto tax before going for legislation does not make cryptocurrencies ‘hundred percent legal’ the counterpoint is very simple: that the government will not venture to impose a tax on an illegal entity, material or virtual. It can be expected that the government will introduce legislation and further regulatory mechanisms regarding cryptocurrencies.
Forbes in an article has already indicated that with the coming of regulations the global players in pension and sovereign wealth funds are “eyeing crypto”. Forbes describes it as the “ultimate signal of arrival”. The article refers to Pimco, one of the world’s largest asset managers and fixed income specialists with assets under management of over US$2 trillion, which has many pension fund clients. In yet another momentous development the Houston Firefighters’ Relief and Retirement Fund of the USA announced in 2021 that it was investing US$25 million in one of the most popular cryptocurrencies, Bitcoin. It is the first instance that the US was introducing cryptos as pension funds while investing in the cryptocurrency market.
No doubt, cryptocurrency has a substantial degree of volatility in itself and one may question how wise it is to tag it to pension funds, and with what impact on the protection of retirement balance. But in a world that is increasingly inducing potential and actual pensioners to go to the stock market, there is hardly any scope to avoid the volatility issue. India is no exception to the rule as for good or bad the New Pension Scheme (NPS) is integrated with market-linked speculative ventures. This global trend will not take much time to reach the shores of India. That the field is ready for it is evident from the taxability of cryptocurrencies after periodic shows of reluctance.
One, however, would prefer to imagine that in India, cryptos as pension funds are appropriate risk management strategies that will also be adopted by the government and the market to protect the interests of pension-holders.