IndiaTech.Org — an industry association representing India’s consumer internet startups, unicorns and investors — has proposed a five-point recommendation on boosting India’s cryptocurrency economy potential to 12 government departments such as the income tax department, ministry of corporate affairs, and other bodies including the Reserve Bank of India.
The proposals have been made to bring in more clarity over various aspects related to cryptocurrency investments, taxation, transaction traceability and money laundering. The association has also demanded that crypto companies be recognised as startups.
Speaking to Inc42, Rameesh Kailasam, CEO of IndiaTech.Org, said that the proposal has also made suggestions related to the nature and scale of crypto investments whether it’s an individual or a company investment, whether it is for short or long-term and so on.
“For instance, there is a Schedule AL of the Income Tax under which an individual or a Hindu undivided family may have to disclose their immovable property, movable property and financial assets if their income is more than INR 50 Lakh. Schedule Al should also incorporate cryptocurrency disclosure or the government can even make an exception to say that whoever is filing income tax returns needs to declare their crypto holdings if they do,” said Kailasam.
Similarly, to avoid confusion over foreign funds in crypto or foreign company activities in India, the association has asked the government to either allow only Indian startups while putting an FDI cap over these companies. The government can come up with caps like 26% stakes must be owned by Indian promoter, a norm that the banking sector has to follow.
“There have been concerns regarding taxation, transaction traceability, money laundering amongst other issues that the government and regulator may have with the intent of protecting customers and maintaining financial protection to investments. With the right checks and balances enabled through existing regulations, these concerns can be sufficiently addressed. IndiaTech.org has therefore suggested changes in exchange ownership parameters, customer KYC, FATF guidelines, accounting & reporting standards, direct and indirect regulations, import regulations amongst other suggestions that will grant the industry the regulatory clarity that it needs to grow without brakes,” Kailasam added.
IndiaTech’s Five-Point Recommendation For Cryptocurrency In India
- Definition And Indian Ownership Requirements: The government should define cryptocurrencies as digital assets like gold, stocks and not currencies. Further, a system for recognising India-registered or Indian-founded cryptocurrency exchanges by setting up necessary checks and balances. India should allow only Indian founders to operate such businesses from a control and monitoring perspective, the body said. Doing so will save billions of dollars in revenue that may be payable to foreign exchanges.
- Compliance, Verification And Reporting: The association has asked to ensure a robust KYC process for compliance and verification purposes. It has also suggested the government follow FATF recommendations to implement necessary safeguards against terror financing and money laundering. To minimise the money laundering possibilities, it has suggested allowing only those crypto-assets such as Bitcoin that give access to forensic analysis and can be subject to certain defined lawful enforcement.
- Taxation, Disclosure And Import: The body has asked to enable necessary provisions in Direct Tax laws to render recognition and treatment under the head of Income ‘Profit and Gains from Business and Profession’ or ‘Income from Capital Gains’ depending on the kind of business of the holder and the timelines of holding. And, GST should be levied on the brokerage or exchange fees (like it happens in stock markets) and not on the transaction value. Similarly, FEMA regulations and assigned HS codes should be applicable for people residing abroad to purchase cryptos in India.
- Treatment of Payments And New Token Issues: The payments made in crypto should be treated as a barter system, IndiaTech has said. The proposal asks the exchanges to take due diligence on tokens and their issuance.
- Self-Regulation: It recommends principle-based self-regulatory guidelines for the industry to align with until such time that necessary amendments to laws and regulations are introduced. This self-regulatory model should be executed through a Government accredited/ recognised body to be able to make self-regulation more accountable and transparent, says the tech association.
Will The Govt Take Steps To Recognise Crypto And Crypto Entities?
The development has come after a series of incidents that the Indian crypto community witnessed in the last few months.
Firstly, the ministry of corporate affairs (MCA) in March 2021, asked all companies in the country to mandatorily disclose any dealings in cryptocurrency or virtual currency in their balance sheets. According to the latest amendments to the Schedule III of the Companies Act, 2013 which shall apply to the ongoing FY 2021-22, the companies will now have to disclose profit or loss on transactions involving cryptocurrency, the amount of holding, and details of deposits or advances from any person for trading or investing in cryptocurrency.
Secondly, the ICICI Bank has joined the bank list that has stopped extending banking solutions to crypto entities. HDFC Bank, RBL, and other banks have already halted services to crypto entities despite the Supreme Court verdict last year which set aside the RBI’s notification of April 6, 2018. This has recently created confusion in the crypto community as payment gateways suddenly stopped crypto-related transactions associated with ICICI bank accounts.
“Ideally, it would help the industry if RBI could give some clarification. As currently, banks are not willing to provide access to crypto industry due to confusion about whether they’re allowed to service the industry or not. If the RBI could clarify its stand to all the banks under it then that would tremendously help this fast-growing sector in India,” said Nischal Shetty, founder and CEO, WazirX.
With the Indian crypto community consisting of 10 Mn traders trading over $350 Mn daily, there is no going back, say multiple crypto startups. The industry which currently has around 300 startups has garnered support from tech policy enablers such as iSPIRT, Nandan Nilekani. Supporting iSPIRT’s idea of using cryptocurrencies and investors to bridge India’s SME financing gap, Nilekani had earlier tweeted,
“How does India become a $5T economy? We’ll need to close the $250B financing gap for India’s small businesses by attracting global, risk-tolerant pools of capital — and as iSPIRT details, the rapidly growing crypto economy may be one of the key ways.”
At a time when India desperately needs funds to bring its economy back on track, will the government turn to crypto and pay heed to the recommendations of the industry?