A flurry of such questions, raising several other issues on the travails of the trade, have stoked hopes in the crypto industry which has been battered by stiff taxes, regulatory void, and Reserve Bank of India’s customary aversion towards cryptos.
Not only are crypto gains taxed at the income tax rate of 30% (unlike the lower capital gains tax on stock profits), VDA traders can’t offset profits with losses to lower the tax outgo. Many high-street banks are reluctant to offer accounts dedicated to pay or receive funds from crypto trades following central bank senior officials occasionally voicing their reservations on VDAs. Besides, there is no clarity under RBI rules and the Foreign Exchange Management Act (FEMA) on whether residents can buy and sell cryptos on offshore platforms.
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A combination of such factors has caused many large crypto investors to shift their trades-and in some cases even relocate-to Dubai which plans to position itself as the world’s crypto capital.Chances are India too may change tack, thanks to the crypto adaptation by advanced markets and the digital coins emerging as an asset class and underliers of US mutual funds.
According to Purushottam Anand, advocate and founder of Crypto Legal, a blockchain and crypto-focused law firm, “Considering the G20 Synthesis Paper, Finance Track Communique, and the recent Parliamentary Standing Committee on Finance announcement selecting VDAs for a detailed examination this year, it is likely that the government will introduce a comprehensive VDA regulation. India has consistently emphasised that regulation or banning can be effective only with significant international collaboration.”Since China remains the only major economy to impose a blanket ban, the global consensus today clearly leans towards regulation rather than prohibition, said Anand.SEBI, RBI, MeitY, or FIU-IND?
Crypto platforms were asked to share their views by mid-August to the data analytics cell of CBDT. Here are some of the specific questions raised by CBDT:
(a) Do you think the current VDA regulation in India is adequate or a comprehensive VDA law is required and the agency which you consider should be authorised to administer it (e.g, Sebi, RBI, MeitY, FIU-IND)?
(b) What percentage of trading volumes has moved offshore, and under what circumstances (eg tax concerns, regulation, liquidity)? Which are the jurisdictions where users/businesses are shifting?
(c) How would you compare India’s VDA tax framework with major jurisdictions?
(d) Have you observed any market impact due to the disallowance of loss set-off or carry-forward? In your view, how has the 30% flat tax affected volumes, liquidity etc?
(e) What is the biggest challenge in implementing the TDS-identifying counterparty’s residency status, calculating the market value of VDA, handling peer-to-peer transactions, or reporting to the income tax department’s centralised processing centre?
(f) Should there be different TDS treatment for market makers, or retail or institutional transactions?
(g) What measures could be considered to ensure a level playing field between domestic and offshore VDA exchanges, particularly in relation to tax compliance for Indian customers?
Since two years some exchanges have begun offering derivative products like crypto futures and more recently crypto options where the TDS impact is considerably lower. CDBT in its questionnaire has asked whether there was lack of legal clarity in derivatives, cross-border VDA transactions, and even in the very definition of VDA. Platforms have to also spell out whether they are ready for OECD’s crypto-asset reporting framework (CARF)-a global plan to curb tax evasion and money-laundering.