India has one of the fastest-growing markets for crypto-assets in the world. So much so that it ranked second in the 2021 Global Crypto Adoption Index by Chainalysis. As well as two unicorns and over three hundred startups, India has around fifteen million crypto-oriented investors. But at the same time, and quite unfortunately, it still doesn’t have a comprehensive regulatory framework for crypto.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, has become pretty much like Ethereum 2.0. Coming, but not arriving. The RBI even tried to ban cryptocurrencies in 2018, while contemplating a blockchain-powered Digital Rupee. The Supreme Court upheld the unconstitutionality of the proposed ban, and thankfully so.
Because of such inconsistencies, the dark clouds of uncertainty loom over the mushrooming crypto-based financial markets in India. Innovators are naturally unable to go all-in. Institutional adoption is also hindered substantially. And above all, taxpayers dealing in crypto-assets remain in a perpetual state of confusion, which obviously isn’t great for economic progress.
The Times They Are A Changin, though. Or so it seems at least, in the light of the recently announced budget for FY22. Rather than banning cryptocurrency transactions, the government has proposed a 30% tax on resultant profits. In other words, crypto-based financial interactions are being classified as gambling. The classification isn’t altogether correct, and the move is of course debatable from a long-term point of view. But in a more immediate context, taxation can be seen as an act of recognition by the government—a ray of hope, potentially leading to greater adoption among institutions and individuals.
It’s still too early to say how things will go from here, or if the government will actually enforce the proposed tax regime. The Income Tax Department is yet to provide confirmation on this matter. We must wait and watch, for now.
In the meantime, Indians need to declare crypto-based earnings as ‘business income’ or ‘capital gains’ or ‘income from other sources’ while filing their taxes and ITRs. They must also rest assured that transacting cryptocurrencies is not illegal in India, and probably won’t be that way in the near future. One might have to pay high taxes or be unable to offset losses, but using cryptocurrencies won’t make them criminals.
The author is a writer on Tech & Culture.