IndiaTech, a tech industry association whose members include Zebpay, CoinDCX, Coinswitch Kuber, and WazirX, wants the Indian government to only let registered or founded-in-India cryptocurrency exchanges operate such businesses. In a letter viewed by MediaNama, IndiaTech also requested the Finance Ministry to clarify taxation around crypto assets in the upcoming Budget Session.
It further argued that by allowing only “Indian founders to operate such businesses”, the country will be able to save money that would otherwise have to be paid to foreign exchanges. “It is recommended that minimum ownership of 26% by Indian founders/entities in Crypto exchanges like the practice followed in the banking sector in India (FDI cap at 74%),” the letter read.
Before the Indian government brings in legislation to regulate the crypto industry, it is necessary to take into account the recommendations of all stakeholders for achieving a balance between compliance with laws and promoting the industry.
Enable necessary provisions in direct tax laws: IndiaTech
Seeking clarity on taxation around crypto assets, IndiaTech urged the government to formally name crypto assets in tax laws. “The budget document should also name and classify cryptocurrencies to be defined as digital assets and not currencies and grant them recognition as digital assets,” the letter read.
Here are a few other recommendations —
Regarding direct tax laws: “Enable necessary provision in the Direct Tax laws to render recognition and treatment under the head of Income ‘Profit and Gains from Business and Profession’ or ‘Income from Capital Gains’ depending on the kind of business of the holder and the timelines and nature of holding,” the letter said.
GST only on brokerage or exchange fees: IndiaTech said that crypto assets should be brought under Goods and Services Tax but requested that a tax of 18% be levied only on brokerage or exchange fees and not on the transaction value.
Regarding crypto assets and income tax disclosures: The association asked the government to make provisions so that individuals holding crypto assets can declare their assets at the end of each financial year. For individuals/organisations holding assets through mining in the past, IndiaTech said that such assets should be treated as “self-generated assets in which case, cost of acquisition maybe needed to be computed appropriately”.
Import of crypto: “Appropriate FEMA Regulations and assigned HS Codes should be applied for the treatment of such cryptos purchased from persons outside India. Ideally, the recognised Indian start-up exchanges may be given the status of Authorised Dealers,” the letter added.
Apart from that, the body urged KYC to be made mandatory for every holder registered with crypto exchanges, and that accounting standards be developed by chartered accountants or cost accountants.
Why crypto assets pose a challenge to India’s exchange control laws
The meteoric rise of crypto asset trading has raised a regulatory concern of foreign exchange management in India, Aman Nair and Vipul Kharbanda of Centre for Internet and Society (CIS) pointed out. It is illegal for any person to indulge in foreign exchange transactions except through persons authorised by the RBI, like money changers, travel agents, banks, etc. “However, the decentralised and peer-to-peer nature of crypto-assets enables individuals to transfer money outside the borders of India without going through any banking channels and hence stay completely outside the purview of the RBI’s supervision,” they said.
Nair and Kharbanda recommended regulating entities that provide crypto wallets, crypto exchanges, or entities that accept crypto assets as payment for goods and services. This way “regulatory agencies can exercise their supervisory jurisdiction over transactions of individual customers at the critical point, i.e. the point where crypto-assets are exchanged for actual currency or goods and services,” they added. Read more here.
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