The much-awaited cryptocurrency draft bill may propose to define cryptocurrencies and classify them based on usage. The move is likely to benefit Indian cryptocurrency investors who have been waiting for a concrete law to regulate virtual coin trading.
Cryptocurrencies could be defined as commodities or assets in the new draft bill, reported The Economic Times after speaking to people aware of the development. The draft bill may also propose taxation for cryptocurrencies including laws for payments, investments and other utilities, added the report.
While the government had earlier said it would not go for an outright ban on cryptocurrencies, it has not yet provided any clarity on how it plans to deal with virtual coin trade in India.
However, cryptocurrencies may be categorised as per the technology they use in the new draft bill. But the primary focus of the government will be based on end-usage of the assets for regulatory purposes, according to the ET report.
The new draft bill is also expected to determine how taxes will be levied on cryptocurrency investments.
A person quoted in the ET report said the government’s draft crypto bill aims to define cryptocurrency and its treatment in various use cases. This will help authorities register cryptocurrency trade in the books of accounts and tax accordingly. However, the government may not be looking to allow payments and settlements through virtual currencies through its bill.
More clarity is needed on whether cryptocurrencies will be treated as commodities, services or similar to equities; only then can virtual coins be taxed or regulated. This is why the government’s primary goal is to define cryptocurrencies in its draft bill. Simply put, a clear definition of cryptocurrency is required to figure out how it will be regulated and taxed in future.
However, sources quoted in the ET report indicated that the government could apply something similar to security transaction tax (STT) on cryptocurrency trade. If they are categorised as commodities, the returns or gains made by investors could also be taxed as business income at normal income tax rates.
WHY CRYPTOCURRENCY BILL IS IMPORTANT
The development comes at a time when cryptocurrency trade is growing rapidly in the country. Domestic cryptocurrency exchanges have reported a sharp jump in trading volumes, and they have also requested the government to regulate virtual coin trade rather than imposing a ban.
Cryptocurrency exchanges in India have said numerous times that the country needs to recognise cryptocurrency tokens as digital assets rather than currencies, and subsequently, clarify policies related to crypto trade.
As of now, cryptocurrency does not have any legal status in India and are unregulated. The proposed crypto bill is likely to define the future of virtual coin trade in the country.
People in the know said only the cryptocurrencies that are covered under the government’s definition will be allowed to be traded in India.