‍‍‍India’s Crypto Riddle on Regulations, Taxation and Prohibition | #KhabarLive Hyderabad News

58
/ 100


The industry is eagerly awaiting the Crypto Bill to clarify how the government plans to deal with crypto in India.

As the decentralized financial system of cryptocurrency and digital currency finds swaths of enthusiastic takers across the world, the Indian government appears to be on the fence about the growing online phenomenon.

During its first term, the BJP-led central government had formed a high-level inter-ministerial committee in November 2017 and its objective was to study virtual currencies, issues related to the sector and suggest ways to deal with them. . The committee, which delivered its report in February 2019, had recommended that policymakers keep an open mind about introducing an official digital currency, observing its benefits.

Three years later, Finance Minister Nirmala Sitharaman, in her speech on the Union budget for 2022-23, announced that the government would soon launch one. She also announced a 30% tax on cryptocurrency income.

Why taxation? Earnings from trading were previously taxed under different headings for different classes of people, according to the government. Some paid tax on long-term capital gains while others paid tax on windfall gains or it was considered business income, depending on the nature of the gain. A 30% tax removes this ambiguity and would be levied uniformly.

To this, Rohinton Sidhwa, Partner, Deloitte India, raises a pertinent question: what happens to the earnings of the past few years? “Earnings from crypto have always been income and were taxable. In the absence of specific provisions, it was up to taxpayers to decide under which head of income and at what rate the tax should be paid. Even though these provisions are not retroactive, taxpayers may seek to apply them retroactively to pay tax from previous years in case they have not already done so,” says Sidhwa. The tax would be applicable to all Indian taxpayers even if the income is derived from a cross-border transaction, it adds.

During the budget session in parliament, Sitharaman had said that the government had the sovereign right to tax profits generated from cryptocurrency transactions and that a decision on the ban would be taken after adequate consultations. In doing so, she effectively ruled out the tabling of the long-pending crypto bill in the session.

While the government seems to have made a decision on taxation, it is still struggling to formulate a policy for the sector. Ever since the government began to seriously study the sector, there have been reports of its plans to ban cryptocurrencies.

The sector has seen rapid popularity in the country, especially among young people, due to the high returns due to the volatile nature of its trade. As more and more people became interested in it, several exchanges dealing with crypto trading have sprung up across India over the past few years.

Cynicism about the sector is not limited to government, however. Former Reserve Bank of India (RBI) chief Raghuram Rajan has expressed his reservations, saying that most cryptocurrencies have no permanent value and only one or two out of the many will eventually survive. .

The government’s delay in formulating a policy also reflects this skepticism. In a post-budget interaction with Outlook Business, Expenditure Secretary TV Somanathan said, “If cryptocurrency should be banned, regulated, remain unregulated or not banned, all options are open. It can be prohibited, it can be regulated or it can be left neither regulated nor prohibited but taxed. This is a separate discussion and [its outcome is] remains to be decided. »

The industry is eagerly awaiting the bill to clarify how the government plans to deal with crypto in India as there is still no clarity on this. “There has been a lot of discussion about what crypto use cases will be allowed. The government has repeatedly indicated that it is not heading towards a complete ban, but that crypto will be allowed to be traded as an asset. Crypto will be treated as an asset similar to a security or commodity,” says Shilpa Mankar Ahluwalia, Partner and Head, Fintech, Shardul Amarchand Mangaldas & Co.

The political dilemma also stems from the discrepancy between the government’s stance on crypto and that of the RBI. While the RBI has always fought for a full ban, the government has always maintained that it is keen on regulating the sector instead of an outright ban.

In December last year, it was reported that the RBI had told its central board that it favored a complete ban on cryptocurrency trading. After his monetary policy meeting in February this year, RBI Governor Shaktikanta Das warned investors against investing money in crypto trading. “Private cryptocurrencies, or whatever you want to call them, pose a threat to our macroeconomic stability and our financial stability. They will undermine the RBI’s ability to deal with financial stability and macroeconomic stability issues,” Das had said, while warning investors that these assets have no underlying, “not even a tulip.” – referring to a 17th century Dutch tulip. price bubble.

The government holds the power to impose a complete ban on private crypto trading. However, until he introduces the Crypto Bill that would define the final crypto regulations, his position on the legality of the industry is uncertain.

“It seems more likely that the legal framework will seek to regulate the crypto-economy, tax gains on crypto trading (which has already been announced) and the ecosystem through licensed intermediaries. The challenge will be to prohibit certain use cases (crypto as a medium of exchange) while allowing others (crypto as an asset), given that the technology can potentially blur the lines between the two,” explains Mankar Ahluwalia.

In November last year, Prime Minister Narendra Modi held a meeting with industry players to discuss its future. The industry wants cryptocurrency to be treated as an asset, just like gold. “We still don’t know how to call something that has no underlying value an ‘asset.’ It is mainly for this reason that regulation takes so long. This sector is completely new to us and it will take us more time to understand it,” said a senior government official, speaking on condition of anonymity.

“What is it? Is it a commodity? Is it a stock? Is it a currency? We still don’t know how to define it. And not defining it means we cannot indicate who would be the regulator in such a case,” the official adds.

According to the official, the sector is volatile, which makes it open to high gains and even bigger falls. It is also highly dependent on technology. In such a scenario, it becomes difficult to assign responsibilities.

Security and data protection become essential to create a safe crypto ecosystem given that it is a digital asset. Not only are all transactions concluded digitally, even the underlying ownership and title is evidenced by a digital private key. Legislation should highlight a basic data security architecture that should be adhered to by crypto-economy intermediaries.

The legislation should also include a framework for licensing intermediaries such as crypto exchanges and wallet providers that operate in the crypto economy. But it is not yet clear which intermediaries will need to be licensed.

“The regulatory framework will also include requirements regarding KYC onboarding procedures and transaction reporting by authorized intermediaries,” says Mankar Ahluwalia.

Since the crypto-economy has no geographical boundaries, a coordinated global approach to crypto regulation is essential to developing an effective regulatory framework. That said, the international community itself has yet to agree on a uniform approach to regulating cryptocurrency. While some countries have completely banned crypto trading, some have accepted certain cryptocurrencies as legal tender. Many major economies are still considering a legal framework.

“India is one of the first major economies to announce the rollout of a Central Bank Digital Currency (CBDC) by 2023. While a CBDC is legal tender and in that sense will operate in a A completely different space from private cryptocurrency, the Indian CBDC framework is likely to become a benchmark for many other jurisdictions,” says Mankar Ahluwalia.

Today, policymakers face a dual challenge: how to define cryptocurrency and who should regulate the sector. The Cryptocurrency and Official Digital Currency Regulation Bill, 2021 was listed for introduction to the Lok Sabha in the last winter session. It was also listed for last year’s budget session. As the government decided that it wanted to rework it, it was not tabled.

With another declining fiscal session, India is still awaiting a crypto bill and with that, clarity. #KhabarLive #hydnews