India’s New Cryptocurrencies Rules – Make It Or Break It?
On 1st February, we sat in front of our screens anxiously waiting for the budget. As the crypto and cryptocurrencies topic got initiated, we were glued to our screens.
India’s New Cryptocurrencies Rules – Make It Or Break It?
Now the crypto investment will be taxed but not legal. What’s the scenario? And why RBI cautioned against it in the early years.
On 1st February, we sat in front of our screens anxiously waiting for the budget. As the crypto and cryptocurrencies topic got initiated, we were glued to our screens. Full of excitement, confusion, and celebration. In all the chaos, one question cropped up: What’s happened right now?!
Sounds similar??!!
Well, get into the wagon, as today we are going to explore Indian cryptocurrency rules. The difference between virtual currency and digital currency? Will this move create new opportunities or demotivate the current ones?
Before we move ahead with the topic, it is necessary to understand the concept.
Investopedia states that-
Cryptocurrencies are a digital or virtual currency that is secured by cryptography. Which makes it nearly impossible to counterfeit or double-spend. They enable secure online payments without the use of third-party intermediaries.
Blockchain plays a pivotal role in cryptocurrency. You might wonder what a blockchain is, right? Well, here is a snippet from our other blog –
Blockchain is a decentralized distributed digital ledger that comprises records called blocks. Here, the uploaded data is difficult to alter without affecting connected blocks. Thus, it reduces replication and establishes a single data transfer.
You may wonder that,
As data cannot change, and transactions are secure. Then why does technology take so long to be accepted since its birth? Well, RBI helps you to understand this point.
In 2013, the RBI warn cryptocurrencies users against its risk.
such as:
- Financial,
- Operational,
- Legal,
- Customer protection and
- Security and privacy risk that they are exposing themselves to.
Further, they elaborated on these topics with the below points:
- The currencies are not created or traded through any authorized institutions or agencies. If there is any loss such as password, hacking, access credentials, or malware will lead to permanent loss of e-wallet. That will lead to permanent loss of virtual currencies held in them.
- Plus, payments are done on a peer-to-peer basis without an authorized central agency. That means there are no central institutions that regulate such payments. Hence, for any customer problems, disputes there is no established redressal framework.
- There are no backups.
- The value of the virtual currency is a matter of speculations and there is huge volatility in the market.
- Such currencies are traded across various jurisdictions with unclear legal status. Platforms exposed to legal and financial risks.
- Additionally, the currencies can be used for illegal activities in various jurisdictions. The absence of counterparties could subject users to unintentional legal breaches. For example – Anti-money laundering, etc.
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Indian Government actions in Cryptocurrencies
The Indian government and the reserve bank understood the rising popularity of the crypto trade. Budget 2022 had two crucial points regarding virtual currencies.
Tax
- First, the nation intends to levy a 30% tax on any income generated from crypto transactions. For instance, Bitcoin, NFTs, etc.
- Second, the government will also levy a 1% tax at the source of transactions.
Digital Rupee
The Indian government intends to introduce a digital currency called Digital Rupee. It is a central bank digital currency that will be introduced in this financial year. We have covered this topic. To know more, click on the highlighted word and jump to the section below.
This move has created a series of questions in the minds of Indian citizens like:
- How much do citizens have to pay taxes?
- Whether the government ban crypto?
- How will NFTs fit into India’s regulatory framework?
and the most important question,
How crypto will be taxed, yet not gain legal status?
There are contrasting views on this question in the market. For instance, these were positive views:
The biggest takeaway is that now, as an investor, I will no longer go to jail as a crypto holder.
– Edul Patel, CEO of Mudrex
Crypto just became legal in India.
– Tweet by Binance
And while several officials asked the public to be cautious.
As the new proposal do not mean crypto is legal.
Now, take a pause and read that line again.
The Finance minister stated that the government is collecting inputs on regulation. Also, they would not wait till implementing regulation for taxing the people who enjoy profits earned from this activity.
And finally, there are other things to consider also:
- The legislation could still impose jail terms or fines. This is not on trading in crypto, but on the person who violates new tax rules that determine the amount of tax to be paid.
- The investor cannot offset losses from transferring digital assets against any other income.
- Gifts will be taxed when it will be in the hands of recipients.
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