Key Takeaways
- Previous steps by the Indian government were clearly aimed at curbing the growth of the crypto industry.
- Regulatory uncertainity has caused many startups to close their operations in the country and many have set up their base in countries with favorable crypto regulations.
- India has an estimated 15 million cryptocurrency users.
- Additionaly, India is home to 11% of the global Web3.0 talents, with nearly 75,000 blockchain professionals working for over 450 blockchain and crypto firms based in India.
- RBI governor Shaktikanta Das is one of the biggest critics of crypto. He has been warning & suggesting the Indian government time and gain to completely ban crypto. Recently, he even went on to say that “private” crypto may trigger the next financial crisis.
- Still a large number of crypto and blockchain startups are currently operating in India, and they are highly optimistic that government will listen to their voices.
- Indian crypto sector expects lower tax rates for investors, and specific regulatory frameworks for web3, crypto assets, NFTs and the metaverse.
As we begin the new year 2023, crypto investors, startups and other stakeholders have started looking at cues from the Union Budget 2023-24. This will be the last full year Budget from Modi government ahead of the next Lok Sabha elections by May 2024. The budget session of the parliament will begin on January 31 and Union budget will be presented on February 1.
So far, the government looks uncomfortable and unprepared with crypto industry and has been delaying the much needed regulations. Moreover, some of the previous steps by the government were clearly aimed at curbing the growth of the industry. This has caused many startups to close their operations in the country and many have set up their base in countries with favorable crypto regulations.
Still a large number of crypto and blockchain startups are currently operating in India, and they are highly optimistic that government will listen to their voices.
Mahin Gupta, Founder of Liminal, a digital wallet infrastructure platform, said: The Indian government took its first step towards regularizing crypto by introducing a formal tax regime for digital assets. The formal tax structure gives institutional investors much-needed clarity and direction to look at digital assets as an alternate asset class.”
“Today, India has an estimated 15 million cryptocurrency users. It is also home to 11% of the global Web3.0 talents, employing nearly 75,000 blockchain professionals with 450+ Web3.0 and blockchain startups operating out of India. These figures alone signify the budding web3 ecosystem in India,” Mahin noted.
Mahin believes that the Indian IT ecosystem is perfectly positioned to build the web3 and blockchain economy of the future and is poised to play a crucial role in fulfilling the Government of India’s vision and mission of ‘Make in India’ for the world.
Last year, the Indian government took first step towards regulating cryptocurrency in the country with announcement of flat 30% tax on income.
A flat tax of 30% coupled with no set off for losses was a clear indication that government wanted to discourage small investors to make crypto investments.
Mahin adds that 30% of the current crypto investors fall under the age of 30. Since this is the age when a person starts their journey towards financial planning and stability, we believe that the Government should rationalise the 30% tax to foster a thriving IT and web3 ecosystem that will drive innovation and growth in the country.
According to Mahin, “with Institutional investors in the picture, storing digital assets in a secure and compliant way becomes an absolute necessity. India needs professional digital wallet infrastructure companies which are regulated, compliant, and licensed to boost the confidence of retail and institutional stakeholders.”
“Considering this, we hope that the upcoming union budget will create a regulatory framework for digital wallet companies and a single window clearance to register and operate in India under the supervision of relevant regulatory authorities. We request an infrastructure status for digital wallet infrastructure service providers so that they can actively contribute towards making India a $5 trillion digital economy,” Mahin Added.
Shivam Thakral, CEO, BuyUcoin, India’s second longest-running crypto exchange, said: The crypto sector needs immediate support from the regulators for creating a business-friendly environment that will enable the growth of blockchain companies in India.
“We are delighted to see that our honorable finance minister is actively involved in creating a global consensus for policy around crypto but Indian crypto entrepreneurs are looking forward to a fast-track implementation of the regulatory framework for crypto exchanges,” Shivam said.
Shivam also suggested that crypto investors should be allowed to offset and carry forward their losses to provide a level playing field to crypto assets and the TDS exemption limit should be raised to a reasonable level. Such positive steps will encourage responsible mass adoption of digital assets and propel India into the next phase of the Web3 economy.
Tarusha Mittal, COO and Cofounder, UniFarm, pointed out that crypto is an essential part of Web3- but the Crypto Bill has been pending for years. Although the tax part has been addressed, Web3, crypto assets, NFTs and the metaverse require a separate Bill for other regulatory matters.
“Recently, BWA has recommended the finance minister to highlight the impact of the existing tax provisions such as TDS, tax on income from VDAs, and not allowing carrying forward of losses on the wider industry and share its inputs on suitable amendments which can help address the concerns of the government and at the same time allow growth of Web3 sector. The government should frame strong regulations for the sector in light of the FTX crisis- especially for centralized bodies dealing with crypto,” Tarusha added.
Last year, Nirmala Sitharaman, the Finance Minister of India, called for global regulation of cryptocurrencies to tackle the risks on money laundering and terror funding.
Last month, the finance minister again said that the Reserve Bank of India has recommended to the government that it should frame regulations for cryptocurrencies.
Addressing queries related to cryptocurrency in the Lok Sabha, the Finance Minister said that RBI is of the view that cryptocurrencies should be prohibited. She went on to add that cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage.
“Therefore any legislation for regulation or for banning can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards,” she said.
India’s central bank, the Reserve Bank of India, recently launched the retail version of its digital currency on a test basis. RBI has been exploring the possibility as to whether there is a need for CBDC, a digital version of fiat currency, and in case there is, then how to operationalize it.
RBI governor Shaktikanta Das is one of the biggest critic of crypto. In fact, he has been warning and suggesting the Indian government time and gain to completely ban crypto. Recently, he even went on to say that “private” crypto may trigger the next financial crisis.
Speaking at the Business Standard BFSI Insight Summit on Dec. 21, Das argued that private cryptocurrencies — those that are not issued by banks or governments — are backed by nothing and are purely tools for speculation.
“They have no underlying value. They have huge inherent risks for our macroeconomic and financial stability. I am yet to hear any credible argument about what public good or what public purpose it serves,” he said.
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