The cryptocurrency confusion remains
One of the most common question one hears about cryptocurrencies is: “Are cryptocurrencies/bitcoins legal in India?”
Countries across the world namely the US, Canada and Australia have started to accept cryptocurrencies. However, Indian regulators, starting from the Reserve Bank (RBI) to finance ministry, have been cautious in apprising investors of the perils of bitcoins, among other digital currencies.
Onnovember30,2017,wheninvestor frenzy was at a high with rising bitcoin prices, finance minister Arun Jaitley said the country doesn’t recognise cryptocurrencies as legal tender. The government cautioned people against investing in them. However, they never said that they are illegal.
Not being legal tender is not the same as being illegal. Not a legal tender implies the government does not accept it as an official currency. That does not mean that people can’t own it or trade it on a regular basis. One simply cannot use cryptocurrencies for a legal financial transaction in India.
The government has kept the public confused by keeping the legality in grey zone. It is possible they have done this to stop people from dealing in cryptocurrencies. Indians are further discouraged, as there is no regulatory framework around cryptocurrencies.
Crypto usage in India is small compared to the rest of the world, but the community is growing. Despite several hindrances— be it from RBI or Centre — cryptocurrencies continue to capture the imagination of people across India. According to a survey, among eight global cryptocurrency markets, buying intentions of cryptocurrency “in six months” was highest among Indians. With 6% share, India beat the likes of the US and Brazil in the number of people wanting to buy cryptocurrencies. The survey, Global Cryptocurrency Survey, conducted by Dalia Research, a Germany- based research firm, released in May 2018, highlighted that India stands fourth after
Japan, the UK and US in cryptocurrency owners.
The move to distance financial institutions from cryptocurrency operators was a hasty decision made by RBI, but as against the free-flowing currency-regime countries like US and Japan, RBI has its limitations to allow cryptocurrency transactions in India, with the current legal framework. With strict capital control in place, allowing the exchanges to operate in India will lead to violation of rupee export and import through the cryptocurrency route. Staying away from the crypto industry will not help the regulator keep a check on crypto transactions, as they can be carried out on a peer-to-peer model, irrespective of whether exchanges are operational or not. As crypto assets/ currencies are not categorised as illegal in India, traders will be free enough to use whichever medium of means available to exchange the currencies. This partial acceptance model will do more harm to investors rather than protecting them. At the absence of major exchanges, investors will look for unregulated channels and means to transact cryptocurrencies. This will give opportunity to scamsters to dupe investors with various promises.
Having no specific guidelines and with no major exchanges to depend on, investors will have no option but to handle OTC markets with trial-and-error. Taxation will be another major trouble for investors and traders of crypto currencies. Any profits that you gain by holding or trading any form of assets is taxable according to the law. Hence, if you have gained a huge profit from buying and selling of cryptocurrencies, these are subject matter of disclosures and profit taxes on the gains are applicable. However, the challenge both the taxpayers and the tax collector will face is that as cryptocurrencies are not considered to be a legal tender, and in the absence of price realisation from major exchanges, getting a benchmark value for the traded asset in rupee will be impossible. A possible option is to refer to the international price on the given day and arrive at a rupee benchmark price, but as the liquidation of crypto against rupee is not applicable in India through exchanges, it is impossible for the tax authority to collect crypto taxes on “fair market value”. With SC hearing on RBI’S decision to ban financial institutions from providing services to exchanges being extended repeatedly, it will be a tough decision for investors.
Praveenkumar Vijayakumar is chief executive officer and founder, Belfrics Global