Bitcoin and other cryptocurrencies are growing in India despite certain restrictions from the government. It has been estimated that over 10 crore Indians own cryptocurrencies, amounting to a worth of about six lakh crore. While this participation warrants an urgent need for a regulatory framework governing cryptocurrencies, so far, India has not yet come up with one.
Indian crypto exchanges have been self-regulating, including adhering to Know Your Customer (KYC) norms and Anti Money Laundering (AML) compliance. These practices are in line with what regulated financial institutions follow to ensure user safety and trust. One of the major crypto investing platforms, for instance, requires that their investors’ details on the KYC documents match with their bank account details for identity verification. They also allow only Indian bank accounts to be used. The platform further does name screening for payments beyond a threshold limit.
According to a member of the Blockchain and Crypto Assets Council (BACC), India has a mammoth population and unique situations compared to other countries that have regulated cryptocurrencies like the USA, Japan, Singapore, etc. With some of the population being either underbanked or unbanked, the government is yet to find solutions that encompass all situations. Hence, self-regulation by crypto exchanges is the only practice being followed until a regulatory framework gets implemented.
How are cryptocurrencies regulated globally?
United States of America
The United States, like India, has a dual legislative system, where the Centre and States can form their regulations. They have investor protection laws for cryptocurrencies as an asset class and on tax from capital gains. An Internal Revenue Service (IRS) ruling in 2014 determined that cryptocurrency is treated as a capital asset, similar to stocks and bonds. US taxpayers are required to report cryptocurrency transactions as they are liable to tax whenever they are sold at a profit.
The United Kingdom, too, like the United States, recognises cryptocurrency as a capital asset and the same are subjected to capital gains tax. Further, crypto exchanges must be registered with the Financial Conduct Authority (FCA), and they need to take all measures to protect customers. They have to also comply with counter-terrorism financing (CTF) and anti-money laundering (AML) initiatives.
To facilitate the exchange, storage, or transmission of cryptocurrency in Singapore, an entity must hold a license. Businesses that trade in virtual currencies in their business are taxed on profits as business income. According to the e-tax guide of the Inland Revenue Authority of Singapore (IRAS), if a person gains that revenue from trading in digital tokens, the same is liable to income tax. However, if the gains are capital in nature, they are not liable to tax. Regulations in Singapore provide clear guidelines for compliance and both AML and CTF initiatives.
Under Switzerland laws, cryptocurrencies are items that can be valued and traded. They are considered to be assets, similar to bank deposits. Hence, they are subjected to wealth tax, and tax rates vary between cantons, i.e. states. If individuals sell cryptocurrencies, then capital gains on sale will not be liable to income tax. However, if an individual holds cryptocurrencies as business assets, then the capital gains will be liable to income tax.
Likewise, corporates are liable to income tax on the net taxable income from the sale of cryptocurrencies. Legal entities further have an annual capital tax.
When is India expected to build a regulatory framework for cryptocurrencies?
While no official announcement has been made, experts predict that the government will introduce laws governing cryptocurrencies early next year, likely in Budget 2022.
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