The much-awaited move is likely to benefit the country's cryptocurrency investors who have been waiting for a concrete law to regulate virtual coin trading.
The government of India is reportedly planning to propose a new draft bill that defines and categorizes cryptocurrencies according to their use cases as an asset/commodity for taxation purposes. The much-awaited move is likely to benefit the country’s cryptocurrency investors who have been waiting for a concrete law to regulate virtual coin trading.
“Cryptocurrencies will be treated as an asset/commodity for all purposes, including taxation and as per user case — payments, investment or utility,” said an ET report.
The report quoted a source saying, “The government in its draft bill is working towards defining cryptocurrency and its treatment in various use cases, so that it can be treated correctly in the books of accounts plus it should be taxed in the right manner. It is not looking to allow payments and settlements through virtual currencies.”
Until now, there is no rule from the government on whether cryptocurrency should be treated as a commodity, currency, service, or capital asset.
This would mean that cryptocurrencies like Bitcoin, Ethereum, Tether, etc. will be treated as assets or commodities and will address concerns and ambiguities regarding the tax incidence on cryptocurrency assets in the country. If an asset is not defined, taxing it poses a challenge. Hence, the obvious reason is to make it easier to tax and in turn regulate them.
Cryptocurrency investors and enthusiasts would be relived with this development because it is a step down from the rigid stance of not allowing it to exist in India.
“Having a clear regulatory framework around cryptos will help investors, businesses, and entrepreneurs to confidently participate in this industry and we’re looking forward to the upcoming guidelines and policies from the government. We hope to see cryptos classifies as an asset class and have laws in place on their taxation just like the other financial markets.
There are thousands of different cryptos in the market with different use cases which work on different blockchain platforms. We’re sure the policymakers will look into how they can be used both as an asset class and also take advantage of the underlying blockchains for their use cases to cater improve India’s infrastructure needs in various industries,” said Avinash Shekhar, Co-CEO, ZebPay.
“We believe having clear laws around cryptos will have a positive impact on investors especially when it comes to the taxation of cryptos. This will also help in keeping bad players out of this emerging technology. Crypto assets are still in their early stages and with clear regulations, we hope to see more Indian investors confidently taking the benefits of an early market,” Shekhar said.
The compartmentalization of these cryptocurrencies will also be reportedly done on the basis of the technology employed. However, it is assumed that for regulatory purposes, the government will focus on the categorization of these crypto assets based on end-use.
Nischal Shetty, Founder, and CEO, Wazir X, said that categorizing crypto is critical to having the right kind of regulations in India. Crypto is primarily classified into four major categories globally: Asset, utility, currency, and security.
“This will bring more clarity for the entire industry and push more entrepreneurs into this sector. It will reduce the fear of VC investors wanting to invest in the crypto industry in India. For retail investors and traders, this will again boost confidence and bring in a sense of stability. The current regulatory uncertainty is not helping anyone. We look forward to this positive direction from the government,” he said.
Needless to say that the country is trading more than 5000 different cryptocurrencies and each one has different technological features and legal characteristics. These exchanges have sent their representation to the government with various suggestions regarding the regulation and future usage of crypto assets in India.
One of the proposals demands that crypto tokens be treated as a digital asset and not as currency. They have further sought clarification on policies with regards to exchange ownership parameters, KYC, accounting and reporting standards, etc. and have called for a system for introducing home grown assets.
The report however mentioned that the government will likely not allow cryptocurrencies to be used for payments and settlements. Only government-approved cryptos will be allowed to be traded in India once the bill comes into effect. In this context, the RBI is set to launch its first digital currency trial programs by the end of the year.
According to a recent report by blockchain data platform Chainalysis, India currently ranks second only behind Vietnam, but is ahead of countries such as the US, UK, and China in crypto adoption, out of 154 nations in terms of cryptocurrency adoption. Also, India has more than one crore crypto investors, and the number is significantly growing every day with several domestic crypto exchanges operating in the country. Bitcoin is currently hovering around the $50,000 mark. The investment in cryptocurrencies grew from nearly $923 million in April last year to $6.6 billion in May this year in India.
While this does capture the attention of the industry experts, investors, and crypto exchanges alike, one would have to wait and see what the new bill spells for crypto going forward in the country.