Cryptocurrencies in general were treated as a controversial topic in India so far, but things are finally changing to the bright side. The much-awaited cryptocurrency draft bill may propose to define cryptocurrencies and classify them based on usage. The move is likely to benefit Indian cryptocurrency investors who have been waiting for a concrete law to regulate virtual coin trading.
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This new bill is expected to outline the tax treatment of these digital assets and will define how they are classified in the book. Cryptocurrencies could be defined as commodities or assets in the new draft bill, reported The Economic Times after speaking to people aware of the development.
Government previously quoted that they won’t outright ban Cryptocurrency as a whole and will find ways to regulate it and utilise its potential.
However, cryptocurrencies may be categorised as per the technology they use in the new draft bill. But the primary focus of the government will be based on end-usage of the assets for regulatory purposes, according to the ET report.
Tax Treatment
The reason the government is going heavy on cryptocurrencies is to make it easier to tax them. If an asset is not defined, taxing it poses a challenge. Cryptocurrency investors and enthusiasts would be relieved with this development.
The ET report said the government’s draft crypto bill aims to define cryptocurrency and its treatment in various use cases. This will help authorities register cryptocurrency trade in the books of accounts and tax accordingly. However, the government may not be looking to allow payments and settlements through virtual currencies through its bill.
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However, the government could apply something similar to security transaction tax (STT) on cryptocurrency trade. If they are categorised as commodities, the returns or gains made by investors could also be taxed as business income at normal income tax rates.
The development comes at a time when cryptocurrency trade is growing rapidly in the country and the bitcoin price nearing the 52000 $ mark Domestic cryptocurrency exchanges have reported a sharp jump in trading volumes, and they have also requested the government to regulate virtual coin trade rather than imposing a ban. Currently, there are an estimated 1.5cr Crypto traders in India as per the Exchanges.
Nischal Shetty, Founder, and CEO, Wazir X, said that categorising crypto is critical to having the right kind of regulations in India. Crypto is primarily classified into four major categories globally: Asset, utility, currency, and security. “This step is very positive for the crypto industry and I’m glad that the government is taking this direction towards crypto regulation,” he said.
“This will bring more clarity for the entire industry and push more entrepreneurs into this sector. It will reduce the fear of VC investors wanting to invest in the crypto industry in India. For retail investors and traders, this will again boost confidence and bring in a sense of stability. The current regulatory uncertainty is not helping anyone. We look forward to this positive direction from the government”.
As of now, cryptocurrency does not have any legal status in India and are unregulated. The proposed crypto bill is likely to define the future of virtual coin trade in the country.
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