Income Tax Department eyes cryptocurrency earnings
According to the news coverage, the Income Tax Department of the Ministry of Finance is looking for ways to levy taxes on all income generated from crypto trades.
As per the report, not just cryptocurrency exchanges, but also individuals making gains from any crypto trading will come under the ambit of the law on income tax.
According to the reasoning of the Ministry of Finance, any activity that generates income must pay taxes within the country. Since the demand for cryptocurrencies increased in India, the Government seems to want a piece of the action as well.
The development comes ahead of the Indian Parliament’s hearing of the country’s Cryptocurrency Bill.
Finance Minister Nirmala Sitharaman had confirmed in August that her department was working on a new bill that will define the status of the ambiguous industry in the country.
“Cabinet note is ready on cryptocurrency bill. I am awaiting Cabinet to clear that,” she said.
No one knows for sure yet what the bill contains. According to reports, however, an inter-ministerial panel on cryptocurrency recommended the Government prohibit all private cryptocurrencies in India.
Instead, the bill will create the framework for the Reserve Bank of India (RBI) to officially issue a Government-controlled digital currency in the country.
According to the Bulletin issued by the lower house of India’s Parliament, the Lok Sabha, “The Cryptocurrency and Regulation of Official Digital Currency Bill”, 2021 plans “to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India.”
The governor of RBI Shaktikanta Das confirmed recently that banks will launch trials for the digital Rupee by the end of 2021.
Additionally, the Indian Government also plans to levy an 18% tax on foreign cryptocurrency exchanges offering services in India.
India has perhaps one of the most confused Governments when it comes to cryptos. While many countries have already established tax systems for cryptos, India is still unclear about its future plans.
Industry players are still at the edge of their seats ahead of the winter session of the Indian parliament. The finance minister is likely to table the cryptocurrency regulations bill.
The Indian crypto Bill seeks to prohibit all private cryptocurrencies in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
In 2018, an Indian government panel recommended banning all private cryptocurrencies. It also proposed up to 10 years of jail time to all those who failed to abide by it.
The recommendations did not go unnoticed. The Government faced backlash and criticism. Under pressure, it decided to form a new panel to study cryptos and come up with recommendations to regulate them.
India’s then-finance minister Arun Jaitley, commenting on the topic, said,
“The government does not recognize cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system.”
Idia’s Central Bank also temporarily banned crypto transactions in 2018. However, India’s Supreme Court overturned the ban in March 2020.
In contrast, former deputy governor of the RBI Rama Subramaniam Gandhi called on the Indian Government to recognize and regulate cryptocurrencies in the country
Rahul Pagidipati is the CEO of Indian startup ZebPay warned Indian companies would have a hard time finding investors and may be forced to shut down and move overseas, owing to the ban.
While India may not completely ban cryptocurrencies, it is unlikely that the Government will accept it entirely.
Chairman of the Parliamentary Standing Committee on Finance Jayant Sinha made it clear, that India will not replicate El Salvador in its approach toward cryptocurrencies.
“Our solution will have to be distinct and unique for India, simply because of our unique circumstances,”
the former Minister of State for Finance said.
However, the cryptocurrency bill also gave rise to optimistic expectations in India. Some startups are hopeful, that the outcome of the bill will help regulate crypto assets.
“We are pleased to see that the government is pressing for crypto legislation. Emerging technologies such as blockchain and cryptocurrency, as well as AI and machine learning, hold the key to future economic prosperity,”
Business Today quoted Siddharth Menon, COO WazirX.
Meanwhile, it will be days before we know what approach the Indian Government really plans to adopt vis-à-vis cryptocurrencies.
Yerevan-based Editor and writer focusing on topics about cryptocurrencies, NFTs, politics, and international relations. Having completed his Bachelors and Masters degrees from Delhi's Jawaharlal Nehru University, he currently works as a Projects Coordinator at Indo-Armenian Friendship NGO and the Indian Cultural Centre, Armenia.