In a significant development that suggests the Indian government may not fully come to terms with the central bank’s overly hostile stance towards cryptocurrencies, the junior minister explained that such activities are fine as long as they follow existing laws.
This is in stark contrast to the Reserve Bank of India’s (RBI) ban on crypto in 2018 and the incomplete opening of the sector even when the Supreme Court struck down the RBI order in 2022, calling it illegal.
Crypto is good
“There’s nothing banning crypto today as long as you follow the legal process,” Rajeev Chandrasekhar, minister of state for information technology and electronics, said at an event on Thursday.
These remarks have significance as the Indian government will present the annual budget for the upcoming fiscal year on February 1.
Local crypto exchanges and investors who have faced an extremely unfavorable regulatory environment – from high taxation to the denial of banking services – have sought and expect some relief to be announced in the budget proposals coming into effect after debate in parliament. , from April 1.
“Through our presentation for the upcoming Union Budget 2023-24, we have proposed to bring down the TDS rate to 0.01%. This lower rate will help Indian VDA companies offer competitive pricing 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 firm stand
In recent months, RBI Governor Shaktikanta Das has described cryptocurrencies as having no intrinsic value and a poor cousin of gambling, which could lead to the dollarization of the economy and even trigger a global financial crisis if efforts are made to regulate them and allow them to function.
But a recent study by Nasscom suggests that India’s talent pool is driving the global push for Web3 and constitutes at least 11% of the workforce. It also highlights the fact that more than 60% of Indian Web3 startups are registered outside the country due to unfavorable regulatory environment. Available data suggests that at least 7% of Indians hold or have made crypto transactions.
Ecosystem Pain points
Currently, 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 from cryptocurrency transactions. The government’s logic for introducing a 1% tax on crypto transactions was to track all such transactions for taxation purposes.
Players in the crypto industry such as Sumit Gupta argue that this purpose can be achieved by collecting a lower tax rate. As high taxes and strict regulations have prompted several startups to relocate from India to favorable jurisdictions such as Singapore and Dubai, it is expected that the government may relax them to “encourage innovation” in the blockchain space.
India’s tax authorities collected approximately $7.4 million in tax on crypto transactions from their implementation in July to mid-December. Weak tax collection is another argument in favor of reducing the transaction tax, which has proven to be too high.
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