India has over 10 million cryptocurrency users and the market size has crossed Rs 6 lakh crore, according to the Blockchain and Crypto Assets Council. Till recently, the cryptocurrency segment in India was unregulated. However, during Budget 2022, Nirmala Sitharaman, the finance minister of India, announced a 30 per cent tax on virtual digital assets such as cryptocurrency. This tax has come into effect from April 1 this year.
Apart from this, there will be a 1 per cent tax deducted at source (TDS) on any payment made in relation to the transfer of a virtual digital asset. Gifting of virtual digital assets will be taxed in the hands of the recipient. This will become applicable from July 1.
Well these tax rules have brought virtual digital assets such as cryptocurrencies within some sort of regulatory ambit, there are many aspects that are still unclear. Apart from that, cryptocurrencies are not legal tender in India.
There has been much debate in the cryptocurrency industry as well as among lawmakers on the legitimacy and future of cryptocurrencies. Many have shared their views in the Parliament and outside of it
During the Budget session, a Member of Parliament (MP) in Rajya Sabha from Maharashtra and deputy leader of Shiv Sena, asked the government to rethink the recently introduced crypto tax regime.
Speaking to Outlook Money, she said, “Taxing something which has not been identified as any mode of asset class, (and does not have any) identification and framework… in India, is not justified and (it) is not going to work. So, the government is basically saying that they do not know whether crypto is legal or illegal but they are going to tax it.”
Coming out in support of the virtual digital asset, Chaturvedi said the currency taxation was a “sin activity”.
Another Rajya Sabha MP, Sushil Kumar Modi, who is a Bharatiya Janata Party (BJP) member and former Deputy Chief Minister of Bihar, told Outlook Money in an interview, that cryptocurrencies are pure gambling and that they want to discourage people from investing in the digital asset. “As the government is facing issues in categorisation of crypto, I requested that they make a new slab and impose more tax on it so that the government can get revenue and people can be discouraged from investing in this volatile asset,” he said.
Biju Janata Dal (BJD) MP, Pinaki Misra, however, believes banning cryptocurrencies would be a step back and would be equivalent to banning the Internet. “The sooner the government comes to terms with that and brings a Bill (Crypto) to Parliament, the better it will be. But the government is clearly ill equipped to handle this; the bureaucrats have no idea how to draft the law,” Misra told Outlook Money.
Congress MP Gaurav Gogoi believes the government is unclear on its position on cryptocurrency and is taking an unnecessarily long time thereby sending out confusing signals. “The government should decide: do they want to terminate (something as) illegal and thereby ban it or see this as a space (that) requires watertight regulations? The government needs to have its own approach and mindset to understand that India is not the only country engaging with cryptocurrency; it is a global phenomenon with many countries having just come out with considered regulation,” Gogoi said.
Bahujan Samaj Party (BSP) MP Ritesh Pandey told Outlook Money, “The government can take taxes as they have the right (to do that), but at the same time they have to (allow) set-off on losses.” He added that the government needs to set up a taskforce that will have experts from the industry and would advise the government on how to regulate cryptocurrencies.
Will Harsh Regulations Lead To Web 3.0 Brain Drain?
India's crypto entrepreneurs have long sought to set up shop abroad, citing a hostile response to the industry from regulators. Recently, Sandeep Nailwal, co-founder of Polygon, a crypto firm, said, “The brain drain is absolutely crazy.” Nailwal is based in Dubai. Several other crypto exchange CEOs have raised their concerns regarding crypto brain drain.
Misra agrees that India may be losing out on an employment generation opportunity. “The entire trading has now shifted to Singapore, Hong Kong and Dubai. Why should anybody want to set up blockchain in India?” he says. India will lose its first-mover advantage, “the advantage of employment that could be generated, and the taxation advantage from legitimate taxes” if the government does not treat cryptocurrencies as a proper asset. “It is capable of giving you a massive tax inflow,” he said.
Misra feels the crypto market is strong in India and advertising is an indication of this. “Everybody knows how deep the cryptocurrency market is. The kind of advertising that is happening clearly gives you an indication. (We have) the resources to bring out front-page ads every second day, (featuring) the highest-paid mascots, ambassadors and actors.”
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Modi feels the government is not discouraging blockchain technology. In fact, he believes there are several possibilities for blockchain (usage) such as land records, health records, counting, etc. “There is no advantage of cryptocurrency for this country. I request the youth of this nation to not go towards cryptocurrency,” says Modi.
Countering him, BJD MP Misra says, “Sushil Modi comes from a state which believes liquor harms people there. That’s the problem; who Is he to decide what is harmful for youngsters. The youngsters (of today) are fully equipped to know what is harmful for them and what is not. They don't need the state to do that. Let us not (consider) youngsters as some kind of a delinquent class.”
To make India vishwaguru, “we have to create an environment where we do not have to be afraid of new technology,” says BSP MP Pandey.
“The government wants to curb and discourage investors. Unicorns are moving to more friendly countries such as Dubai, Singapore and Japan,” says Chaturvedi.
Does Crypto Have A Future In India?
Ruling party MP Modi believes that no one knows when the crypto bubble will burst, and millions of people will get ruined financially. Pandey, however, believes crypos are here to stay. “You cannot avoid Web 3.0. (Similarly,) crypto is the future for India. If we do not give a chance to our Indian crypto firms, it will be an opportunity for foreign exchanges to grow and our Indian crypto exchanges will be suppressed.”
Misra says that just because the government is trying to discourage people doesn't mean people will get discouraged. “The government has to understand that this is like trying to discourage users from using the internet.”
Chaturvedi believes that educating and creating enabling ecosystems will lead to an environment that is empowering for all.
Gogoi advocates a cautious and considered approach to crypto.