Indian Government Takes The Middle Road In Crypto Regulation

Before the 2022-23 budget was presented in the Indian Parliament, there had been ongoing clamor that India was going to ban cryptocurrency in its entirety. In fact, several economic groups were also supporting the ban—a move that would destabilize the entire Indian crypto market, which had the largest number of crypto holders in the world.

While crypto regulation is an intensely debated subject, it seems that the Indian Government has taken a much softer stance than most believed. Previously, crypto was a completely unregulated sector in India and several Indian startups were using crypto to fund themselves, which was an operation in the legal grey zone.

This uncertainty in funding via crypto arose because cryptocurrency has the ability to flow via the blockchain through international countries—a move that could disrupt the foreign exchange management policies of the country, which in India, was the Foreign Exchange Management Act.

However as per the budget, the Indian government gave crypto the legal status of an asset class. The regulatory affair over crypto thereby passed from the Enforcement Directorate to the Income Tax Department as the only rule that the Government prescribed was that crypto gains were to be subject to tax, or more specifically short-term capital gains tax.

This meant that when you sell crypto, any gains that you may realize, shall be taxed at a 30% rate. While the taxation may surely be quite a large amount, it is in line with India's taxation policies.

Crypto having now been accorded the status of a virtual asset, the capital gains tax will hold even if it is exchanged with any other virtual assets, such as NFTs.

Startups using crypto to for self funding may find this to accord their funding procedures a much needed legal sanctity, as funding methods like ICOs are all covered under the virtual assets class. Due to the previous confusion as to whether crypto should be given status as a currency or assets, banks had been unwilling to enter the crypto industry.

But now, with the Budget 2022 and the launch of the digital rupee based on blockchain technology, experts believe the situation is ripe for a change.