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With Bitcoin and Ethereum soaring to all-time highs and others consolidating, it is believed that digital currencies could have a bright potential in India, but firms that deal with crypto must report all their transactions and holdings when they submit financial information for taxation.
A new rule that has come into force in India for Indian companies to report all their cryptocurrency transactions and holdings when they submit financial information for taxation, will help streamline the nascent digital currency industry, according to financial experts and analysts.
The move will also bring about a minimum standard of transparency required to push the sector forward – with cryptocurrency following the same formula as any other new innovative financial service to go through a development lifecycle, they said.
At the end of the 2020-21 fiscal year in March this year, the Indian government introduced new cryptocurrency rules for companies in the country – mandating that, starting from April 1, all Indian firms that deal with crypto must report all their cryptocurrency transactions and holdings when they submit financial information for taxation.
Since income from any source derived is included in the Income Tax Act, the gains from cryptocurrency-related services are liable to be included in these rules, according to Indian Minister of State for Finance and Corporate Affairs Anurag Singh Thakur.
Even globally, governments have brought a regulatory framework for all crypto instruments – with a consideration for taxation being the next logical step.
“The possibility of tax income also helps the regulator self-regulate to some degree. Controlling the industry so tightly that crypto operations are not financially viable in India would ultimately make the regulator lose out on tax income. Taxation is always a sensitive subject, but the pattern is known and there is no surprise in crypto eventually falling under taxation regimes like many other financial instruments before it,” said Konstantin Anissimov, Executive Director at CEX.IO.
Indeed, with Bitcoin and Ethereum soaring to all-time record highs and other cryptocurrencies consolidating, the fact remains that the digitisation, decentralisation and automation of currency are becoming mainstream.
IndiaTech, an industry body which works with startups and their investors, has written to the Indian government suggesting that cryptocurrencies should be regulated as an asset, highlighting its potential in boosting India’s economy. The recommendations include defining crypto assets as property similar to gold and stocks, recognizing only those currencies which can be traced, bring it under capital gains for income tax purposes and bringing it under the ambit of the money laundering laws.
With Bitcoin and Ethereum soaring to all-time record highs and other cryptocurrencies consolidating, the fact remains that the digitisation, decentralisation and automation of currency are becoming mainstream.
“Crypto has a bright future in India. It is the sector that is inevitably at a unique stage to attract FDI, generate employment at the same time foster innovation which puts India on a global map. There is potential that needs to be rightfully tapped for India to see several startups grow out of this sector,” IndiaTech’s proposal said.
Indeed, the key difference here is that the suggestions consider cryptocurrency as an investment option and not as a currency.
But some economists have gone a step further in advocating more radical adoptions of the blockchain technology that supports cryptos.
“Blockchain could solve some of India’s most intractable and deeply intertwined problems: limited state capacity, poor tax collection and corruption,” said Susan Ostermann, Jarek Nabrzyski and Ian Taylor, a panel of distinguished computer scientists and professors at Notre Dame’s Keough School of Global Affairs.
“India’s recent move towards a centralised Goods and Services Tax (GST) is a pragmatic step in the right direction. It is easier to collect taxes from a somewhat limited number of relatively visible entities than from 1.3 billion people. The next step is to put GST tax collection on the blockchain. This would reduce corruption and streamline payments,” they said.