India's crypto industry has a lot riding on the upcoming budget.
As investors across the country get on the crypto gravy train, the lack of regulatory oversight in the sector has made taxation a grey area.
This comes at a time when cryptocurrency exchanges are facing increased scrutiny from government agencies.
"Currently, a lack of clarity exists. People are freely doing their own interpretations. That is leading to regulatory uncertainty. We have asked the government to clarify on taxation in the budget document," says Rameesh Kailasam, chief executive officer at IndiaTech.
Kailasam cautioned that if this uncertainty persists, then we will have a financial year ending where there'll be one item which will not have clarity of taxation.
"You can't expect people to interpret. Talk to most people who are investing in crypto – largely millennials – they say it is not mentioned anywhere so why should they pay taxes," says Kailasam. "Unless people are told that their crypto gains will be construed as income, they will continue to be ignorant of it."
Industry observers have exhorted governments around the world to classify cryptocurrencies as digital asssets and not currencies.
This, according to the tech lobby, will enable taxation - direct and indirect- on crypto assets similar to other assets, generating additional revenue for the exchequer.
"If you're treating it as a currency, then you can't tax it. But if you think it's an asset, then obviously you're levying GST and other taxes on the transaction," says Kailasam, adding that GST should ideally be levied on the commission paid to crypto exchanges and not the whole transaction value.
In response to a question in the Rajya Sabha last year, union minister Anurag Thakur had said that "the gains resulting from the transfer of cryptocurrencies assets are subject to tax under the head of income, depending upon the nature of holding of the same".
However, in the absence of any specific provisions in Indian tax laws, there are various issues pertaining to whether investment in crypto needs to be disclosed and offered to tax in the country by a taxpayer, according to Deloitte India.
"The method of computing the fair market value, costs, taxable income, reporting requirements, etc., needs to be defined," says the accounting firm.
Crypto investments soared from approximately $923 million in April 2020 to a whopping $6.6 billion in May 2021.
"We expect the union Budget to present fine-tuned clarity on the crypto landscape. While the legal implementation still seems a while away, any initiative announced in the Budget would at least open a direct line of conversation on crypto classification as an asset class, its taxation policies and the blue-ocean opportunities available in this globally emerging segment," says Nischal Shetty, CEO, WazirX.
This, according to Shetty, would not only encourage institutional investments in the space but also open up job opportunities in the underserved markets.
While crypto exchanges currently adhere to their self-regulatory code of conduct, CoinSwitch Kuber's chief business officer Sharan Nair believes a regularised environment will attract more Indians to start their crypto investing journey. "We hope the upcoming union Budget will bring in regulatory clarity and help standardise best practices, address misconceptions around this emerging asset class," says Nair.
On January 17, Prime Minister Narendra Modi, in his 'State of the World' address at the World Economic Forum, called on countries across the globe to be on the same page when it comes to dealing with cryptocurrencies.
IndiaTech, too, has called for international collaboration of democratic countries as this "asset" transcends borders. India may refer to the upcoming Financial Action Task Force (FATF) guidance to implement necessary safeguards, it says in its whitepaper.