In a significant development that indicates that the Indian government may not fully chime with the central bank’s overly hostile stance against cryptocurrencies, a junior minister explained that such activities are fine as long as they follow existing laws.
This is in sharp contrast to the Reserve Bank of India’s (RBI) ban on crypto in 2018 and not fully opening up to the sector even when the Supreme Court scrapped the RBI order in 2022, calling it illegal.
Crypto Is Fine
“There is nothing today that outlaws crypto as long as you follow the legal process,” Rajeev Chandrasekhar, Minister of State for Information Technology and Electronics, told an event on Thursday.
These remarks assume significance as the Indian government will be presenting the annual budget for the upcoming fiscal on February 1.
Local crypto exchanges and investors who have been facing an extremely unfriendly regulatory environment – from high taxation to denial of banking services – have asked for and are expecting some relief to be announced in the budget proposals, which come into force, after deliberations in the parliament, from April 1.
“Notably, through our representation for the upcoming Union Budget 2023 – 2024, we have suggested that the rate of TDS be brought down to 0.01%. This lower rate will help Indian VDA businesses offer competitive prices to Indian VDA users and protect them from exposure to unregulated foreign exchanges,” Sumit Gupta, Co-Founder and CEO of CoinDCX, said in a statement.
RBI’s Tough Stance
In the past months, RBI Governor Shaktikanta Das has described cryptocurrencies as something having no underlying value and a poor cousin of gambling, which can lead to the dollarization of the economy and even trigger a global financial crisis if efforts are made to regulate and allow them to function.
But a recent study by Nasscom suggests that India’s talent pool is driving the global Web3 push and accounts for at least 11% of the workforce. It also underscores the fact that over 60% of Indian Web3 startups are registered outside the country because of the unfavorable regulatory environment. Available data suggest that at least 7% of Indians either hold or have made crypto transactions.
Ecosystem Pain Points
Right now, the pain point in the Indian crypto ecosystem is the high tax regime that provides for a 1% transaction tax and a 30% tax on gains made on cryptocurrency transactions. The government’s logic for introducing a 1% crypto transaction tax was to track all such transactions for taxation purposes.
Crypto industry players such as Sumit Gupta have been arguing that this purpose can be achieved by levying a lower tax rate. As high taxes and strict regulations have prompted several startups to move out of India to favorable jurisdictions such as Singapore and Dubai, it’s expected that the government may relax them to “foster innovation” in the blockchain space.
Indian tax authorities have collected approximately $7.4 million in crypto transaction taxes since their implementation in July to mid-December. The low tax collection is another argument put forward in favor of reducing the transaction tax, which is proving to be prohibitive.