A few months ago, SC reversed RBI’s ban on dealing in cryptocurrencies. Since then many startups are working to introduce decentralised finance (Defi) to provide financial & banking services using cryptocurrencies. With the crypto market of India growing rapidly, the government has a Bill on its table that can ban and criminalize dealing in cryptocurrency. Amidst all the clutter, let’s look at the legal, taxation, and other features of cryptocurrency in India.
Crux of the Matter
Before we delve into the economic, legal, and taxation features of cryptocurrency in India, you can read some interesting stats on cryptocurrency here: Cryptocurrency In Numbers.
Why Is The Attraction Towars Cryptocurrency Increasing?
Vibhor Jain, the founder of Chained Ventures says that traditional banking and finance are facing stability issues. Moreover, the rate of return from these traditional sources has also significantly reduced. Hence, many are putting their money on the blockchain and earning an interest of 9-12% on crypto-deposit.
Is Cryptocurrency Legal In India Then?
Cryptocurrency is not illegal but it is also not considered a legal tender in India. There are no laws pertaining to cryptocurrency and currently, it is in a grey area.
Is Income From Cryptocurrency Taxable?
India’s Income Tax Act does not have any provision on the taxability of cryptocurrencies. Taxation on cryptocurrency depends on the regularity of transactions and treatment in books of accounts.
Since cryptocurrency does not fall within the definition of currency under the current statute definitions, the gains would be taxed either as income from business/profession or as capital gains.Riaz Thingna Director, Grant Thornton Advisory
The Feature Of Anonymity
- Personal identity i.e name, physical address, and email address is not linked to bitcoin transactions.
- Public addresses are used for transactions.
- Due to untraceability of crypto transactions, governments are not allowing a significant quantity of transactions to take place anonymously.
- Governments fear it could be misused for funding illegal activities, terrorism, etc.
Experts’ Stand On The Matter
Kenneth Saul Rogoff, Chief Economist of IMF says governments are not allowing crypto because it would be difficult for governments to collect tax as tracing every transaction is difficult. He also says that once the allure of anonymity is removed, cryptocurrencies are good to use. Rogoff also says that it is wrong to say cryptos have no worth simply because they don’t have a backing. However, if the supply of crypto can be controlled then it will have value as a transaction medium.
Subhash Chandra Garg, Former Finance secretary says that since currency represents purchasing power, it must be issued in a well-calibrated way by the government or RBI. He also says if a private party starts issuing currency, the monetary policy goes for a toss. Garg says Facebook’s crypto Libra’s value will be maintained in terms of global currency, so FB will have to manage its value by buying more dollars at the market rate, making the process very costly. So eventually the issuing agency will make losses and cryptocurrency may not be reliable.
It must be noted that Garg is leading the Bill banning and criminalizing cryptocurrency in India.
Not accepting cryptocurrencies may damage local economies in the long run. Governments must realise that cryptos will not replace fiat currency. In fact both can coexist.Changpeng Zhao, CEO Binance
- ‘Pi’ is the first digital currency that can be mined on our phones. The digital currency is developed by 2 Stanford PhDs and an MBA; and has gained over 8 million users in less than 2 years.
- In 1996, the National Security Agency published a paper entitled How to Make a Mint: the Cryptography of Anonymous Electronic Cash, describing a Cryptocurrency system, first publishing it in an MIT mailing list and later in 1997, in The American Law Review.
- David Lee Chaum is a computer scientist and cryptographer. He is known as a pioneer in cryptography and privacy-preserving technologies and widely recognized as the inventor of digital cash. His 1982 dissertation “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups” is the first known proposal for a blockchain protocol.