Regulation will clarify crypto trade rules in India, say experts

After the the Income Tax Department issued notices to about 1 lakh cryptocurrency investors, experts believe rules for taxation and trade should be clearly defined.

A recent US Senate hearing brought favorable news to cryptocurrency investors on the global level as both the chairman of Securities and Exchange Commission (SEC), and chairman of Commodity Futures Trading Commission (CFTC), in their testimonies, decided on a stance of not causing harm to the digital assets market. At the same time, the hearing stressed on bringing clarity and regulation to the table.

While global investors got some relief, Indian investors are still confused over Finance Minister’s complete dismissal of their recognition and granting a ‘not legal’ status to cryptocurrencies. Following the announcement, reports of IT Department issuing notices to investors have also surfaced. The question is whether Indian government will follow the American steps and promote the digital assets market under its umbrella of regulation and taxation? 

“When we talk about the cryptocurrency market in India, of course the outcome of the US Senate hearing is positive news because one of the biggest economies has indicated that it will regulate cryptocurrencies. In India, the exchanges are still running, and to protect the interests of the common people, regulations should be also implemented,” says Nirav Maniar, Partner and Head, Corporate Legal and Information Technology at International Business Advisors.

Regulatory framework on crypto-assets

In a media statement, Subhash Chandra Garg, secretary in the department of economic affairs said that the government is set to bring forth a regulatory framework by the end of the present financial year, March 31st. Although there is yet to be a formal announcement from the finance ministry in this regard, the chairman of the Securities Exchange Commission of India (SEBI), Ajay Tyagi has also confirmed the government is working to formulate the regulatory framework regarding cryptocurrencies.

“If we look at other countries, such as US and Canada, they have come up with rules in which cryptocurrencies will be taxed and regulated but India has not done that. So, there is lack of clarity in India without a framework.”

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Ajeet Khurana, Head, Blockchain and Cryptocurrency Committee of India

Head of the Blockchain and Cryptocurrency Committee of India (BACC), Ajeet Khurana believes India's stance on the issue is at par with the other nations, as they continue to contemplate on regulation strategies. “The clear statement that has come out from every quarter is that a crypto currency is not a legal tender, as in it is not a legal currency. At the same time, barring Japan no other country has recognized it as a legal tender of exchange. So, in that context, the Indian stance is in conjunction with the rest of the world. But, if we look at other countries, such as the US and Canada, they have come up with rules in which cryptocurrencies will be taxed and regulated; but India has not done that. So, there is lack of clarity in India without a framework,” said Khurana.

What the future holds for cryptocurrency in India?
China banned all cryptocurrency trading in the end of 2017 and many investors in India are afraid that the government can follow the same path. Although the fear of a blanket ban continues to dread traders and miners, experts think it is unlikely. “Banning is not in the cards because if it was there, they would have already done it. The government recognizes that there is good revenue that can be collected from this. Now, they have to come up with a framework regarding how it should be treated for tax,” states Maniar.

“If you look at the Indian government, it has taken a very unique stance. As far as individual investors are concerned they have gone after the taxation angle and for the exchanges itself they are talking about licenses or potential regulation. We may have clarity on this issue towards the end of March when the Government’s panel set up to examine crypto assets is expected to submit its report. So until then, the nuance and the apparent contradictory stance over the legality of cryptocurrency is going to continue for some time,” tells Anand Bhushan, ‎Partner at Shardul Amarchand Mangaldas.

“Banning is not in the cards because if it was there, they would have already done it. The government recognizes that there is good revenue that can be collected from this. Now, they have to come up with a framework regarding how it should be treated for tax.”

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               Nirav Maniar, Partner, International Business Advisors

Government's concern with cryptocurrencies
Government’s concerns regarding cryptocurrencies have been centered on their use for illicit activities, including terrorism. According to the government, the pseudo-anonymity of cryptocurrencies makes them a perfect tool for criminals; but experts say each address on the blockchain protocol can be tracked with the help of software and analytics tools.

“The one thing that is worrying the government is the anonymity aspect which we can help them take care of. These are completely open distributed ledgers and anybody on it has a public wallet address through which all the transactions can been traced. We can also create a software program over the bitcoin layer for this purpose. If the government is worried about activities such as money-laundering, then they must consider that all bitcoin transactions can be traced using the wallet address whereas assets like gold leave no such trace,” said Khurana.