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Budget 2022: Crypto players hopeful for regulatory, taxation clarity

With crypto legislation yet to pass, Budget may prove crucial for crypto-holders

finance-ministry-cryptocurrency-bill-bitcoin Representative image | File, Finance Ministry

India's crypto industry is hopeful the government will provide some clarity on taxation and regulation of crypto assets in the forthcoming Budget session. At the same time, there are also fears that cryptocurrencies may be banned altogether.  

“The crypto industry has been long awaiting the Cryptocurrency Bill, which was expected in the winter session and later in the budget session. However, the waiting period remains, as the legislative framework of Cryptocurrency may take some more time due to various complexities and practical challenges," says L. Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys.

"The final bill must detail the regulatory considerations surrounding cryptocurrencies and the concerns about private digital currencies. In this budget, we may expect the government to provide directions on the taxability of crypto assets to investors, however detailed rules and taxation framework for cryptocurrencies is still a work in progress. The sale and purchase of cryptocurrencies may also be subject to levy of TDS/TCS. Clarification on applicability of GST on trading and brokerage activities is also required, and whether such transactions would be brought within the ambit of Specified Financial Transaction (SFT)."

Industry experts are hoping for both regulatory and taxation-related clarity from the government. The former, in particular, could boost the crypto sector and accelerate its potential. 

“While the legal implementation still seems a while away, any initiative announced in the budget would at least open a direct line of conversation on crypto classification as an asset class, its taxation policies and the blue-ocean opportunities available in this globally emerging segment. This would not only encourage institutional investments in the space but also open up job opportunities in the underserved markets, ” remarked Nischal Shetty, CEO, WazirX 

Many industry players expect clarity in terms of how crypto transactions will get regulated as there have been discussions going around in the crypto space but there have been no concrete results so far. 

“With the upcoming union budget, we expect detailed clarity on how it will be regulated and an introduction to a tax regime that would be more fruitful. 2021 was the most significant year in terms of how things shaped up for the crypto industry in India and as a crypto community. With a robust mechanism in place, 2022 would be the year of mainstream crypto adoption,” said Gaurav Dahake, CEO and founder of Bitbns.

Despite many industry players vying for more clarity on crypto, there is also a general perception that it may also be banned. Adding to crypto investors worries, Bitcoin has lost a third of its value in a month and a few countries have brought in restrictions on cryptocurrencies. 

“There is a fear among the public of a possible ban on it by the Indian finance minister in the budget next week. However, having permitted the promotion of crypto trading through advertisements on prime media and having been a spectator as the masses have gobbled up cryptocurrencies for years now, it would be unexpected of the government to ban it altogether. This may defeat the very purpose of protecting the interests of common investors," says Jaya Vaidhyanathan, CEO, BCT Digital.

"What we instead expect the finance minister to do is to bring clarity on recognition of the nature of income from, taxation on, and the gains made in crypto trading. Accordingly, the government might bring legitimacy to cryptos by announcing a taxation scheme with simple compliance and KYC requirements, while keeping the tax rates reasonably high to deter uninformed participation of investors into cryptos,” Vaidhyanathan adds. 

Experts such as Sudin Baraokar, Global IT and Innovation Advisor are of the view that there is a whole lot of innovation happening around the blockchain and the digital currency ecosystem space and no one can ignore its importance and significance in India and the globe. The emergence of Central Bank Digital Currency (CBDC) is a result of that and currently, pilots are being implemented by central banks, commercial banks and fintech both as a wholesale CBCDC and Retail CBDC. 

“These weapons of mass innovation may ensure a seamless plug and play of digital currencies and digital assets with the massive banking and financial services ecosystem. Through CBDC the central bank and authorities can play the role of protection of the investor and citizen money, and the commercial banks and fintech can use CBDC for a myriad of use cases for financial inclusion, universal basic income, global digital payments and remittances and digital platform-based lending CBDC can ensure the addition of greater trust as a service in the entire financial services ecosystem thus ensuring financial stability and orderly conduct of the global financial system,” said Baraokar.

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