Indian media have turned the spotlight on Budget 2018, but lots of titles end with question marks. The new financial frame is to be presented next week by the Finance Minister. Recent developments suggest that the status of bitcoin in India is likely to be determined, at least in terms of how much cream the government is willing to scoop out.
All eyes are on minister Arun Jaitley, referring to his budget expected on February 1. Anxiety about the true intentions Delhi hides behind mandatory warnings has been building up in Indian society. Members of the Indian crypto community have been calling for clear government policies towards cryptocurrency trading and taxation. Companies planning to set up new mining facilities and POS terminal networks in the country have also asked for clear guidelines to steer their businesses.
Clarity, in regards to taxation, is likely to be offered with the new budget. There are strong indications of the government’s eagerness to tap into crypto income, despite its consistent hostility towards bitcoin. Back in December, the Income Tax Department carried out searches at major exchanges. More recently, Indian crypto traders received notices from the tax authorities concerning crypto investments not reflected on their tax returns.
Last week local media revealed that India’s top banks had suspended some accounts of major crypto exchanges, suspecting “dubious transactions”. According to sources quoted by ET, at least eight accounts in various banks, including the State Bank of India, Axis Bank, HDFC Bank, ICICI Bank and Yes Bank, have been suspended. Cash withdrawals from other accounts were limited. Zebpay, Unocoin, Coinsecure and Btcx India have been mentioned as targeted exchanges. The banks were asked to file reports of suspicious transactions with the Financial Intelligence Unit.
According to a tax authority official, quoted by ET, a special team has been investigating the applicability of sales tax on bitcoin exchanges for the previous financial year. It has been estimated that some of them operate at margins reaching 20% due in large to the gap between buying and selling rates, reaching 25% in some cases. The total revenue figure for the top 10 exchanges is about 400 billion rupee (more than $6 billion USD), Indian media reports.
Taxing bitcoin income is another subject that needs clarification. As both the Reserve Bank of India and the Finance Ministry do not recognize cryptos as currencies and legal tender, two options remain on the table. Goods and Services Tax can be levied at bitcoin and altcoins – 12%, if they are considered goods, or 18% if they are deemed as services. Currently, Indians are not paying GST on their bitcoins, but the government is working on it, Karan Batra, CEO of Charteredclub, told FT. He also shared his hopes for clarity in the new financial year.
In December the Finance Ministry set up a special panel to follow developments, including the volume of bitcoin related trade, and help speed up the process of adopting regulation. Representatives of the Department of Economic Affairs, the Reserve Bank of India and the Income Tax Department have been invited to join the committee. Again, no members of the crypto community have been asked to participate or share opinion.
Bitcoin, and cryptocurrency in general, is yet to be legally defined in India. Now it is neither classified as a commodity, an asset, nor as security or any other financial instrument. Some say there is no need to even mention bitcoin in the new budget. “It will die its own death”, says Asif Iqbal from Escorts Securities, quoted by FE. However, many Indians involved in crypto, and foreign investors eyeing the country’s potential, see a brighter future. Their participation in efforts to regulate, and why not legalize bitcoin, could have opened eyes in the corridors of power in Delhi. Unfortunately, they have not been given that chance by the authors of Budget 2018. Crypto India can only hope for some clarity.