Indian minister says crypto transactions are fine as long as they follow the law

Indian minister says crypto transactions are fine as long as they follow the law

In a significant development that suggests the Indian government may not fully share the central bank's overly hostile stance towards cryptocurrencies, a junior minister stated that such activities are fine as long as they follow existing laws.

This is in sharp contrast to the Reserve Bank of India's (RBI) crypto ban in 2018 and the failure to fully open up the sector even as the Supreme Court overturned the RBI order in 2022, calling it illegal.

Crypto is fine

“Today there is nothing that prohibits crypto as long as you follow the legal process,” Rajeev Chandrasekhar, minister of state for information technology and electronics, said at an event on Thursday.

These comments assume significance as the Indian government is set to present the annual budget for the coming fiscal on February 1.

Local crypto exchanges and investors who have faced a highly unfriendly regulatory environment - from high taxation to denial of banking services - have asked for some relief and expect it to be announced in the budget proposals, which will come into force after deliberations in Parliament, from 1.4.

"Specifically through our advocacy for the upcoming Union Budget 2023-2024, we have proposed to reduce the TDS rate to 0.01%. This lower rate will help Indian VDA companies offer competitive pricing to Indian VDA users and protect them from the risk of unregulated forex," Sumit Gupta, co-founder and CEO of CoinDCX, said in a statement.

The tough stance of the RBI

In recent months, RBI Governor Shaktikanta Das has described cryptocurrencies as something that has no underlying value and is a bad cousin of gambling, which can lead to dollarization of the economy and even trigger a global financial crisis if efforts are made to regulate and allow them to function.

But a recent study by Nasscom suggests that India's talent pool is driving the global Web3 push and accounts for at least 11% of the workforce. It also highlights the fact that over 60% of Indian Web3 startups are registered outside the country due to the unfavorable regulatory environment. Available data suggests that at least 7% of Indians hold or have made crypto transactions.

EcosystemPain points

At the moment, the pain point in the Indian crypto ecosystem is the high tax system, which imposes a 1% transaction tax and a 30% tax on profits from cryptocurrency transactions. The government’s logic in introducing a 1% crypto transaction tax was to track all such transactions for tax purposes.

Crypto industry players such as Sumit Gupta have argued that this purpose can be achieved by charging a lower tax rate. As high taxes and stringent regulations have prompted several startups to move out of India to favorable jurisdictions like Singapore and Dubai, the government is expected to ease them to encourage “innovation” in the blockchain space.

Indian tax authorities have collected about $7.4 million in crypto transaction taxes from July to mid-December since their introduction. The low tax collection is another argument put forward in favor of reducing the transaction tax, which is proving to be prohibitive.

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