IndiaGovernment should end the suspense on cryptocurrency soon

Government should end the suspense on cryptocurrency soon

Author: L Badri Narayan
The Cryptocurrency and Regulation of Official Digital Currency Bill 2021, is due to be introduced in Parliament, but it is not yet clear what the government is going to do. However, Prime Minister Narendra Modi’s Twitter account was hacked on Sunday and the hacker tweeted that the government has bought 500 bitcoins and is going to distribute them among the countrymen. So far it has been heard about cryptocurrency that the government is going to ban all such private currency. Earlier, all efforts to regulate virtual currency have failed, including the draft bill of 2019 and the Reserve Bank’s circular in 2018. This circular was rejected by the Supreme Court in 2020.

Government officials have said that only ‘private cryptocurrencies’ would be banned, but did not specify what the term meant. Industry experts feel that the government may probably ban currencies like Monero and Dash. Although they are also based on ‘public’ blockchain technology, but by hiding the information of the transaction, they give a privacy to the users. This is not the case with bitcoin and ethereum. The transactions done in them can be traced. The statement of government officials could also mean that the Center will ban all cryptocurrencies.

The bill is also being eagerly awaited because it will reveal the government’s attitude towards products based on blockchain technology. It is also important for the industry to know what the government is thinking about regulating products based on this technology. There is also a question that can crypto-assets be bought from the amount of money that the Reserve Bank has allowed the countrymen to take abroad every year? Or will it not be allowed? The bill will also answer whether crypto exchanges will be considered as intermediary and e-commerce marketplaces under the Foreign Direct Investment (FDI) law?

Internationally, there has been a good move towards taxing digital currency under Value Added Tax (VAT) and Goods and Services Tax (GST). Many countries initially considered these currencies as service. Therefore, if someone buys any goods or services from them, then it is considered as a barter transaction (giving one thing and taking another thing). But this created the problem of double tax. Here, as far as indirect taxes are concerned, digital currency is also being treated like normal currencies.

Digital currency can also be brought under the ambit of GST law of India. as a good or service. Another thing is that the rate of GST on a commodity is notified in accordance with the Custom Tariff Act. In such a situation, even if we assume that digital currency is a commodity, then it has to be clarified in which class it has to be kept under the law. The same difficulty will arise even if they consider them to be service.

Now let us look at whether crypto exchanges can be considered as e-commerce platforms or not. If yes, then under the Income Tax Act, exchanges will have to comply with the rules related to FDI, Tax Collected at Source (TDS) and Tax Collected at Sales (TCS). Buying bitcoins can be taxed under the ‘income from business’ category or capital gains tax can be collected. Which of these will be taxable, it can be decided according to the reason for buying or selling cryptocurrency.

It is expected that the cryptocurrency bill will not only clear the picture on the regulation of their exchanges, non-fungible tokens (NFTs) and blockchain technology, it will also know how much time will be given to implement them after becoming law. The bill should also clear the picture regarding the GST treatment of these currencies so that double tax can be avoided.

(The author is executive partner of Lakshmikumaran & Sreedharan Attorneys)

Disclaimer: The views expressed above are those of the author.