Where does India stand on the crypto spectrum today? What, according to industry leaders, needs to be done going forward while the government prepares a policy to regulate the sector?
As India enters the global crypto discourse with one foot on the taxation pedal with a 30% tax on income from cryptos and tax deduction at source (TDS) at 1%, many concerns are emerging about its regulation, taxation and legality. Even in the face of an elusive crypto bill and an ambiguous official stance on the budding decentralised financial system, there are opinions galore.
Outlook Business spoke with many stakeholders across various domains to gauge where India stands on the crypto spectrum today and what they think needs to be done going forward.
Cryptocurrencies have failed as means of payment and, hence, as currencies. They have morphed into the category of digital money as assets. Today, cryptos are speculative assets as evident from their volatility.
-A. Damodaran
Professor, Indian Institute of Management, Bangalore
More guidance is required on the mechanism of tax deduction at source, categorisation for taxation purposes, a comprehensive view on what will be considered as virtual digital assets, transitional provisions between the previous positions adopted by taxpayers and the new regime, a method to determine the location of seller/service provider and buyer/service receiver, among other aspects.
-Tapati Ghose and Sreeram Ananthasayanam
Partners, Deloitte India
Taxation will have a positive impact because a large portion of the market that is not yet into crypto has been trying to gauge the legal aspect of it … There is no change for people who already fall under the 30% tax slab, but for the others, particularly the 18-25-year-olds—the biggest investor bracket of the crypto sector—it is a big blow.
-Nischal Shetty
Founder and CEO, WazirX
The gains from crypto trading have always been considered income and were taxable. In the absence of specific provisions, it was left to taxpayers to decide under which head of income and at what rate the tax was to be paid…even though the provisions are not retrospective, taxpayers may seek to apply them retroactively to pay tax for the past years.
-Rohinton Sidhwa
Partner, Deloitte India
Instead of regulating crypto, the exchanges need to be regulated. Participants and service providers need to be regulated. Plus, it must be ensured that all exchanges operating in the country are also registered here.
-Nischal Shetty
Founder and CEO, WazirX
It seems more likely that a legal framework will seek to regulate the crypto economy, tax gains on crypto trading—which has already been announced—and the ecosystem via licensed intermediaries. The challenge will be to ban certain use cases, such as crypto as a medium of exchange, while allowing others, such as crypto as an asset, given that technology may potentially blur the lines between the two.
-Shilpa Mankar Ahluwalia
Partner and Head, FinTech, Shardul Amarchand Mangaldas & Co.
I do not think that the government has any interest in breaking into the privacy of crypto investors. What the government is rightly interested in is the profits made by crypto investors…These capital gains must be taxed. For getting the taxes, whatever returns and reasonable information the government needs has to be provided by crypto investors. This is not a breach of their privacy.
-Subhash Chandra Garg
Former Union Finance Secretary
Governments feel that cryptocurrencies threaten macroeconomic stability and lead to revenue leakages. Cryptos are viewed as assets floating on thin ice, which pose a serious risk to its investors. The role of cryptocurrencies in the dark web is a serious concern.
-A. Damodaran
Professor, Indian Institute of Management, Bangalore
Crypto investors need to be alert towards hacking and permanent loss in case of forgotten passwords to keep their crypto assets safe.
-Edul Patel
CEO and Co-Founder, Mudrex
Cryptocurrencies are high energy-consuming [entities]. India’s energy demand is going to double or triple in the future, and currently millions of Indians live in energy poverty. The country has limited resources to produce electricity, be it solar or other forms of energy fuel. Against this backdrop, whether India can join the cryptocurrency race is a questionable proposition.
-Sandeep Pai
Energy Economist, CSIS Energy
Crypto is the future of the world. There is no doubt that currently, it consumes a huge amount of energy, but as the industry progresses, it will become energy efficient. Already, miners are shifting to renewable energy sources to make their footprint carbon neutral. The money that is involved in the ecosystem will also make the sector invest in green fuel across the world.
-Mukesh Kwatra
Green Energy Expert
ICOs disrupt the traditional venture capital route in the sense that start-ups seek funds directly from their users or the crypto community, thus creating a win-win situation. It is important to have a balanced approach to manage ICOs to safeguard investors. Also, the regulation should not be so restrictive that start-ups face difficulty in raising funds…When India enacts a law on virtual assets, the belief is that it will touch upon the ICO route of funding as well.
-Siddharth Jaiswal
SportZchain CEO
Blockchains have cryptos, just like public companies have shares. Cryptos incentivise talent to maintain and develop on top of the blockchain. The Indian blockchain ecosystem has the potential to become as big as the IT services industry or the e-commerce sector someday: it can attract foreign direct investment and create more jobs.
-Ashish Singhal
Founder and CEO, CoinSwitch Kuber
In the absence of a national policy, the industry is living in uncertain times. This needs to end. If we are able to initiate a national-level programme to tokenise public services under the Digital India programme, we can create a unique trajectory for our national blockchain strategy.
-A. Damodaran
Professor, Indian Institute of Management, Bangalore
We are looking at some tweaks. The tax deduction at source (TDS) of 1% on the entire trading amount should be brought down to 0.01%.
-Nischal Shetty
Founder and CEO, WazirX
There needs to be a focused and consolidated dialogue between the government and the industry to ensure that there is clarity and a structured approach is devised to deal with cryptocurrencies, non-fungible tokens and the like. If history is any indicator, similar instruments based on this underlying technology will emerge in the future. It is, therefore, extremely important that all virtual digital assets are subjected to proper regulation with adequate safeguards for retail investors and that exchanges operate within the framework of the law.
-Tapati Ghose and Sreeram Ananthasayanam
Partners, Deloitte India
India has been one of the first large economies to announce the roll-out of a CBDC by 2023. While a CBDC is legal tender and, in that sense, will operate in a completely different space from private cryptocurrencies, the framework for India’s CBDC is likely to become a benchmark for many other jurisdictions.
-Shilpa Mankar Ahluwalia
Partner and Head, FinTech, Shardul Amarchand Mangaldas & Co.
According to an estimate, there are over 100 million crypto-asset owners in India. We are ahead of the US here. With the blockchain industry transitioning to staking [that is, earning rewards on verifying transactions] in a big way, the large base of crypto-owning Indians could spawn multiple, technologically competent enterprises in the blockchain space. If played well, we could emerge as a major countervailing force to the crypto power of the West.
-A. Damodaran
Professor, Indian Institute of Management, Bangalore