Nearly one crore Indian investors are thought to own cryptocurrencies worth Rs 10,000-15,000 crore. “For an outright prohibition, that’s a lot of money.”
The proposal, which said that possessing, holding, or transferring cryptocurrency might result in imprisonment or a fine, would subject thousands of people to scrutiny and force them to liquidate their assets.
The national government, the Reserve Bank of India (RBI), and the judiciary have been squabbling about cryptocurrencies for the past eight years, with no clear resolution as to whether they are legal or not.
Companies in India face a blow to their crypto businesses
Those who have invested Rs 15,000 crore in 340 crypto trading sites are on pins and needles. As the companies wait in stony silence, almost $400-500 million (Rs 2,920-3,650 crore) in daily trading is on the line.
Binance, the world’s largest cryptocurrency exchange by trading volume, purchased WazirX (an Indian exchange) in November 2019, while CoinDCX, another Indian exchange, received funding from Seychelles-based BitMEX and San Francisco-based giant Coinbase in the 2021 year.
These investments took place despite a Reserve Bank of India (RBI) ruling prohibiting Indian financial institutions from providing services to crypto exchanges and their users for nearly two years, beginning in April 2018. At least these two crypto exchanges were forced to close due to the prohibition.
Even at present, cryptocurrency exchanges in India operate without the assistance of banks.
The final position on regulation will be reached once the ongoing consultations are complete
The government’s stance on digital assets has shifted dramatically over the last several years, from an outright ban in 2016 to an impending Bill for regulation.
The new Cryptocurrency and Official Digital Currency Regulation Bill 2021, differs from the previous one. There is currently no rule or prohibition in place in the country regarding the usage of cryptocurrencies.
The Supreme Court of India overturned the Reserve Bank of India’s (RBI) ruling prohibiting banks from enabling crypto transactions in March 2020.
Starting the fiscal year 2022-2023, the Indian government has announced that it will develop an official digital currency and begin taxing earnings gained on cryptocurrencies.
Since India has the most cryptocurrency owners globally, its 340 cryptocurrency start-ups prefer regulation to prohibition. Experts in the industry are looking for a way to communicate with the government. The government is attempting to understand the practical elements of this technology better.
Currently, the bill is based on theoretical understanding rather than practical industrial knowledge. Both practical and theoretical competence govern crypto money, such as tax laws, benefits, and security.
Government taxation substantially legitimizes the industry-Nischal Shetty, CEO of WazirX
According to Nischal Shetty, CEO of WazirX, India is finally on the path to legitimizing the crypto sector. India’s announcement of a blockchain-powered Digital Rupee is fantastic news.
This decision will pave the road for cryptocurrency adoption and position India as a leader in innovation. It’s also worth noting that the government is starting to recognize crypto as an emergent asset class, despite the FM referring to it as a virtual digital asset.
The most significant breakthrough, however, was the clarification of cryptocurrency taxation. This would provide much-needed recognition to India’s crypto sector. Hoping that this development clears up any misunderstanding for banks, allowing them to offer financial services to the cryptocurrency business. The tax certainty is a positive step.
Overall, it’s reassuring to see that the administration is taking the progressive stance of pushing forward with innovation. The government legitimizes the sector to a considerable extent by imposing taxes. The bulk of people, particularly corporations, who have been hesitant to participate in crypto due to uncertainty will finally be allowed to do so.
Transacting with virtual assets, including non-fungible tokens (NFTs), is subject to a 1% tax deducted at the source
In addition, a new Section 194S is intended to be implemented (effective July 1, 2022), which requires the acquirer to subtract 1% TDS (tax deducted at source) and deposit it with the tax authorities at the time of payment of the consideration.
This is mainly for capturing the digital and financial footprints of those who deal with “virtual digital assets”, allowing the taxman to see all of the transactions across the country, and keeping the bitcoin exchange on the radar.
It is too early to predict what India’s crypto legislation will look like
Nobody knows the government’s position on the bill, but legislation without a blanket ban will surely enhance India’s crypto economy.
According to several analysts, India cannot afford to be a laggard while the globe is quickly adopting blockchain technology. As a result, reports have surfaced that crypto as an asset class may be permitted in India.
However, the government has yet to approve it as legal cash. The Union Cabinet is considering the cryptocurrency bill and is expected to decide soon.
According to reports, the statement recommends that all private cryptocurrencies be banned in India, except for state-issued virtual currencies. Crypto experts, on the other hand, are hoping for the best.
It is taking the government a long time to enact the new laws
There is currently no legislation, act, or regulation in India that governs, regulates, or prohibits dealing in crypto assets. As a result, it was legal to sell, buy, trade, or mine cryptocurrencies in the country and open a cryptocurrency exchange.
The demands of industry players, investors, and other stakeholders, on the other hand, are likely to reach the government, which may finally pay attention to dispel the clouds of ambiguity and point the way forward for the future.
The first and most pressing anticipation from the Budget was more clarity on how cryptocurrencies are classified legally for tax purposes. The proposed legislation on digital currencies was supposed to be introduced in Parliament during the monsoon session, but it was not.
Under the direction of the secretary of state for economic affairs, an inter-ministerial panel on cryptocurrency investigated virtual currencies’ concerns and proposed specific solutions in its findings. The sector had been waiting for the government to acknowledge the importance of cryptography and innovation. When the government itself announces the launch of digital coins, it starts a revolution. Finally, it has made a step forward in digital currency adoption as an industry.
Taxation is already higher than it should be, but the industry, which was already thriving in the absence of regulation, will now flourish with the government’s explicit support.