India has been all over the news lately concerning cryptocurrencies. Bitcoin and other digital currencies are very popular in India, and officials are trying their best to regulate and to develop new rules to monitor the cryptocurrency sector. In the last few days, very important statements from politicians have been issued and hints at regulations were made. Here is a recap of what happened recently in India.
The Indian ministry of finance declared that cryptocurrencies were similar to “Ponzi schemes“. Ponzi schemes are scams where the richer investors are paid using the lower tier investors’ funds. These usually end up really badly and the lower tier investors lose all their money. The finance ministry hopes to make investors wary of cryptocurrencies, mostly of security issues and potential “bubble”. The ministry stated that “There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes“. The government also stated that it does not consider bitcoin and other digital currencies to be real money and that no regulations are in place. Therefore, the finance ministry strongly advised against investing. As other governments across the world did, the ministry of India also warned about what cryptocurrencies could be used for: “terror-funding, smuggling, drug trafficking and other money laundering acts.“
Cryptocurrency exchanges are growing more popular in India. People are becoming more interested and invested in cryptocurrencies and decentralization. This translates into an increase in sign-ups on these exchanges. For example, Indian exchange Unocoin now has 10,000 new users per day, versus 1,000 a day in December. Now that Indian exchanges are getting more traction, they are raising questions about their taxation status. Most importantly concerning the goods and service tax (GST). Answers from the government and the Authority for Advance Rulings are expected soon.
Indian officials are also looking into cryptocurrency trading gains and how to tax them. Reports claim that the government is working on a tax plan for digital currencies, that could be ready for the next Union Budget. Meanwhile, at least five big bitcoin investors have already received tax notices. The question that is crucial as of now, for other countries and governments as well, is how to tax cryptocurrencies? There are multiple ways of earning cryptocurrencies, multiple ways of making money, and therefore these need to be regulated. Will it be taxed as a real currency? Will there be a difference between trading, mining, and capital gains? How will bitcoin purchases and transactions be taxed? These questions still need to be answered.
TLDR: The state of cryptocurrency in India is shifting. More and more people are getting interested in digital currencies, which raises questions about taxation, exchanges and is pushing the government to introduce new regulations.