India’s first steps towards a blockchain and crypto powered future

India opens up to cryptocurrencies as it is declared as taxable assets in the 2022 national budget.

Overview:

Flat 30% tax on profits generated from crypto trading

1% TDS for all related transactions

Gifts in cryptocurrencies to be taxed as well

Gifts in cryptocurrencies to be taxed as well

Only a few years ago, cryptocurrency was not a term you would hear on the news or as a topic of conversation at the dinner table. A few years later, India is riding atop a robust cryptocurrency industry that thrived despite a somewhat lethargic regulatory climate.

Despite the challenges, the cryptocurrency community has persevered, creating alliances with non-profit organizations like the Internet and Mobile Association of India to advocate for increased openness and involve policymakers in determining the future of this revolutionary technology in India

Although demand existed, the industry lacked a distinctive character. Everybody was anxious about how the law would recognize it. This created a huge entrance hurdle until March of last year, when our honorable finance minister reiterated that India will not close all doors to bitcoin, blockchain, and fintech.

Following months of anticipation, cryptocurrencies have been designated as taxable assets. This was accompanied by a whopping 30% tax on investment earnings, putting an end to any questions about its legitimacy. Investors and market participants will incur a significant burden, one can view it as not the right step, but a step in the right direction. One thing is certain, February 1st, 2022, will be a day to remember for the Indian crypto community

Our finance minister also advocated a 1% tax deduction at source (TDS) on payments made in connection with the purchase of virtual assets in order to track all such transactions.

No deduction in respect of any expenditure or allowance shall be allowed while computing such income except the cost of acquisition. Further, loss from the transfer of digital asset cannot be set off against any other income,” she noted, adding “Gift of virtual digital asset is also proposed to be taxed at the hand of the recipient.

The proposal comes at a time when cryptocurrency and NFT purchases are rapidly gaining traction in India, despite all the hiccups along the way. When it comes to taxing cryptocurrencies there is still some much-needed clarity, however, this is a solid first step towards that direction

The recent proposals don’t come as a surprise for the cryptocurrency community, as several jurisdictions across the globe are known to impose heavy premiums on the crypto markets, and the market in India has been thriving.

According to industry tracker Tracxn, India garnered $638 million in crypto and blockchain investments over 48 rounds in 2021. Across 930 fundraising rounds, the global funding for crypto and blockchain ventures totaled $24.86 billion.

Investors from across the world are pouring money into India’s crypto and blockchain firms. This is primarily due to a strong development community, increased interest amongst retail investors, and the success of Indian projects like Polygon and Instadapp

Andreessen Horowitz, a startup capital firm located in Silicon Valley, invested in an Indian cryptocurrency exchange, earlier this year. Meanwhile, Draper Dragon, a San Mateo, California-based VC firm, has established an India practice, Antler India plans to invest in 25–30 blockchain and Web 3.0 start-ups over the next two to three years

Investors in India are also beginning to develop strategies for specialized crypto funds and to experiment with various investments. In addition to non-fungible token (NFT) initiatives, Sequoia Capital India, and Kalaari Capital have invested in decentralized finance (DeFi) and other projects

These developments are only a drop in the ocean when compared to some other nations, but India seems to be catching up. Per a Chainalysis research from October, India’s crypto industry expanded 641% from July 2020 to June 2021, making it one of the world’s fastest-growing cryptocurrency economies.

The digital rupee

India has also entered the CBDC fray for the first time. The Reserve Bank of India (RBI) said last year that it intends to introduce a digital currency. At the time, the government considered prohibiting cryptocurrency use. However, with the creation of a committee to explore the country’s cryptocurrency future, everything came to a halt

The RBI is already developing a state backed digital currency, in an effort to boost the digital economy and enhance currency management efficiency. As authorities have previously remarked that digital currency would be advantageous for currency management as well.

When the digital rupee is developed, it could be used to pay for social benefits and other targeted payments. In certain instances, the central bank may issue a pre-programmed CBDC that is restricted to a specific purpose. For example, pre-programmed CBDCs might be used to disburse LPG subsidies via direct benefit transfers (DBTs).

This CBDC may be accepted only by approved LPG agencies; it will be denied otherwise. Any commercial bank with the authority to change the character of the CBDC might convert it to a general-purpose CBDC or fiat money for LPG agencies.

This is only one of the numerous possibilities inherent in the emergence of this technology. Regulations governing the already-existing ‘decentralized’ alternatives are anticipated to follow. With an open mind, this might pave the road for India to establish itself as a leader in developing technology

The bottom line

We still have a long way to go when it comes to properly regulate cryptocurrencies, but recent developments have managed to fuel fresh confidence in the market and have dampened fears of an outright ban on the space, as previously rumored. We already have one of the world’s fastest-growing startup industries, and cryptocurrencies and blockchain technology are going to be a perfect fit to further aid our nation’s ambitious goals, especially with authorities finally paying the industry its due attention.

Disclaimer: Cryptocurrencies are highly volatile and subject to market, technical, and regulatory risks. Crypto trading requires one’s own diligence, and Cryptoforce will not be responsible for any losses incurred. Any information provided here should not be regarded as Cryptoforce’s technical or financial advice