India’s Upcoming Crypto Survey

01 March 12:17

【TR; DR】

As 2021 arrived and concluded without so much as an acknowledgement of the Indian government’s propositions to introduce their much awaited crypto regulation bill, the revelation of an upcoming Budget review will divulge further into India’s plans. The Budget is anticipated to address how the Indian government and their authorities plan to tax cryptocurrencies and similar assets, thus providing Indian investors, as well as international investors, more clarity on the upcoming cryptocurrency regulatory landscape.

However, after several worries about India potentially condemning the likes of Bitcoin, as well as the remainder of the cryptocurrency market, the news that India may actually tax and regulate cryptocurrency could spell good news over what has been a dismal forecast within India. As Nigel Green of deVere Group conducted bullish surveys, the Indian Finance Minister Nirmala Sitharaman officially announced the government's intentions to impose a 30% tax on any income generated through the transfer of digital assets, a first for the nation infamous for the division of opinion in regards to cryptocurrency.

‘India, like many other countries, has come to the sensible conclusion that you cannot ban cryptocurrencies, it would have been a futile and backward-looking decision to do so’ - revealed Sitharaman.

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What Was In The Bill?

Indian Finance Minister, Nirmala Sitharaman delivered a host of news to Indian investors earlier this week in a monumental Budget speech. Referencing India’s ‘Finance Bill, 2022’, Sitharaman proposed the integration of Section 115BBH, which essentially enforces a mandatory 30% tax on any income generated by the transfer of digital assets, including NFTs - with the remainder of the income taxed based on existing taxation systems.

Essentially, if you invest $1000 into any crypto asset, such as Ethereum or Bitcoin, and you choose to sell the asset you bought now that it has reached $2000 you will pay a tax on this income. In accordance with the tax proposal brought to light by Sitharaman, the taxation on this revenue would be $300, as the income generated from the initial investment is what is taxed - not the initial investment - at least in terms of this new proposal. Any additional cryptocurrency investments or transactions will also be taxed by either 15% or 20%, based on the new or old tax regime selected by the investor.

However, the silver lining of this news was revealed as Sitharaman emphasised that cryptocurrencies and NFTs will be regarded as ‘virtual digital assets’ under the new addition of clause 47A, thus redefining the preexisting legal references made towards cryptocurrencies and similar assets by the Indian government. CEO of ZebPay, Avinash Shekhar, emphasised that the ‘government has come a long way in its stance towards crypto’ and that there is confidence that this will ‘herald a new era of growth and innovation for India in a Web 3.0 world’. With the consolidation of support from the leading crypto exchange within India, the government’s proposal to recognise cryptocurrencies and associated assets as legal tender emphasises the potentially blossoming future of the Indian cryptocurrency landscape.

Sitharaman also brought light to other proposals that may be introduced eminently, including: a 1% TDS under the newly added Section 194S, the amendment of Section 56 to include virtual digital assets as taxable gifts, and that loss is not allowed to be either carried forward to the next year or set off against any other income in the same year.

How Will This Affect Indian Investors?

Whilst the Indian government’s sudden reformation in their stance on cryptocurrency may come as welcome news, it has since sparked confusion amongst several investors and stakeholders due to the current ambiguity of its proposals. The leader in international tax practises at Nishith Desai Associates, Meyyappan Nagappan, brought light to the ‘complete lack of guidelines’ as to whether the taxation proposal will impact trading income, investments, or capital gains which could pose a threat to investors and their trading operations, particularly if this lack of clarity continues until the implementation of the bill.

Nagappan also discussed how the implementation of the ‘highest tax regime‘ may have negative repercussions on investors primarily trading within high-volume, low-margin strategies, as the ‘risk will be too high’, which may ultimately result in a mass trading pattern shift towards an investment-style processing as opposed to typical arbitrage trading - which in turn may present a threat to cryptocurrency exchanges.

Many cryptocurrency exchanges in India are renowned for their elaborate marketing proposals that have drawn in investors from around the nation and enticed them to invest from as little as INR 100. However, the introduction of a much stricter and considerably more expensive taxation system may lead to many short-term or small-portfolio investors to choose not to trade as the impending threat of taxation looms nearer. Taking a cynical approach to this revelation, partner of Khaitan and Co, Rashmi Deshpande stated: ‘I think that’s what the government wants’; as the volume of private investors may decline and cryptocurrency exchanges suffer blows as a result.

Yet, the bill failed to include the prospective taxation on staking and mining of digital assets, alluding to a future where miners may only be taxed in the event that they convert their crypto assets into INR or other virtual digital assets - potentially creating a loophole for investors.

Is Taxation The Future?

Crypto taxation has long remained a hot topic within the cryptocurrency ecosystem, particularly due to its controversial nature and the lack of international or even national agreement about how to proceed with cryptocurrency regulation. However, as India proposes their cryptocurrency tax, following suit with several countries across the globe, taxation appears to rapidly be growing as the general norm within society.

Taxation is logical when applied in the context of other taxable assets, of which tend to include: income, tangible items of value, property, amongst many others; as these assets require tax to be paid to the government as a result of owning them. Yet when viewed from a decentralised perspective, taxation may be perceived as inhibiting the entirely ‘decentralised’ ethos of cryptocurrencies as whole by imposing regulation and creating centralised systems to manage them.

The matter of taxation will long remain subjective within the world of decentralised finance, however, it can be ascertained that many more countries may soon follow suit of their peers and endeavour into the taxation of virtual digital assets.

Author：Matthew W-D, Gate.io Researcher
*This article represents only the views of the researcher and does not constitute any investment suggestions.
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