From the April 6, 2018 RBI Notification stating “Prohibition on dealing in Virtual Currencies (VCs)”, to the Supreme Court’s decision on quashing the RBI Notification on crypto payments on March 5, 2020 – the cryptocurrency economy in India has seen it all.
After the honorable Supreme Court’s intervention in the matter, banks started doing business with crypto exchanges. Exchanges resumed rupee transactions, allowing their customers to convert rupees to cryptocurrencies and vice versa. Cryptocurrency market witnessed a phenomenal bounce back.
The landmark decision of the Apex Court precedes the Union Budget 2021, and hence, crypto exchanges and investors have high hopes from the finance minister. Here is what they expect.
#1. Formal recognition
It’s time to take clues from the EU, Japan and other counterparts that are intelligently regulating the cryptocurrency exchanges to prevent their misuse for illegal purposes like money-laundering. The EU has revised the Fourth Anti-Money Laundering Directive (AMLD) to mandate and favor drafting of policies and procedures on behalf of exchanges to detect, prevent and report money laundering and terrorist financing. Top exchanges in India to the likes of PCEX Member have a long-standing demand to recognise the cryptocurrency market. The recognition has to be followed with the establishment of an independent regulator to look after the affairs of the crypto exchanges.
#2. Clear tax regime for crypto gains
Bringing the crypto gains under the purview of the income tax is a win-win situation for investors and the government. Investors will be able to confidently disclose it and use the earning, and the government’s exchequer will be able to tap in a huge income.
Speculations are high that the government is planning to levy an 18% goods and services tax (GST) on Bitcoin transactions. It has already engaged with the Central Economic Intelligence Bureau (CEIB), an arm of the finance ministry on the matter.
The worth of the crypto market in India in 2017 before the RBI notification to ban it was $12.9 billion. Applying the expected GST of 18% it comes around $2.3 billion. A clear vision of the government will push the market and revenue further.
Rights without responsibilities only lead to chaos. Investors making the gain and exchanges earning commission out of it should also exercise transparency in filing their tax returns. PCEX Member is the one of the cryptocurrency exchanges in India that apply 18% GST on crypto trading.
#3. Regulatory framework like SEBI
Aspirations are high to bring the cryptocurrency market under the SEBI. The demand for regularization has been raised by leading law firm Khaitan and Company, along with Crebaco Global, a credit rating and audit firm. It will eliminate the fraud risk factor. SEBI will be able to exercise the provisions under the Indian Penal Code (IPC). It will make crypto exchanges more accountable to their stakeholders. Overall, the development will provide a boost to the confidence of investors in crypto trading in India.
SEBI is in touch with the international regulators including Japan’s Financial Services Agency, the UK’s Financial Conduct Authority, and Swiss Financial Market Supervisory Authority to know about the mechanism of the cryptocurrency.
#4. Reform in the Foreign Exchange Management Act, 1999
Currency other than Indian currency is known as ‘foreign currency’ and is governed by Foreign Exchange Management Act. Since cryptocurrency trading can be borderless, it’s important to include cryptocurrency within the ambit of this law. As of now, FEMA covers transactions in cheques, drafts, currency notes, money orders, letters of credit, bills of exchange and promissory notes, and other instruments as notified by the RBI.
#5. Imposition of Copyright Act
Cryptocurrency is a cryptographic programming, and it deserves the copyright protection like any other proprietary software applications. This will enhance the security of the cryptocurrency and deter any illegitimate action or malpractice against it. You are well informed about the economic loss happening due to the circulation of a counterfeit currency. If the government has a true intention to legitimise cryptocurrencies, it must extend the IT copyright act to include cryptocurrency. This will help in curbing any related fraud.
#6. Acceptance as Prepaid Instrument
The Payment and Settlement Systems Act, 2007 permits the use of mobile wallets, credit or debit card, PayPal, NEFT, RTGS, etc., as the mode of electronic fund transfer. What if users have freedom to use their crypto wallet or cryptocurrency to make payment to a vendor using cryptocurrency? Indeed, this sounds like a distant dream to expect from the current budget, but yes, doing so will be a revolutionary step in establishing cryptocurrency as a mainstream payment system.
#7. FDI in Cryptocurrency
Recognizing cryptocurrency assets as a commodity will help exchanges to welcome FDI. This will help the Indian exchanges to benefit from the liquidity, knowledge, skills and technology of the global crypto or blockchain companies and expand their market. Whether it’s a spot or futures trading, India’s Foreign Direct Investment Regulation (FDI) warrants an asset to be a commodity. Furthermore, this necessitates exchanges to register themselves with the government to be compliant with the Securities Contracts (Regulation) Act (SCRA) to conduct commodity trading.
Stay tuned with PCEX Member and get crypto related Budget updates. We’ll keep you posted on what expectations got fulfilled and what not because we want you to invest wisely and grow with us.
It’s clear that if the Budget 2021 regulates cryptocurrency and exchanges to protect the interests of its stakeholders, its adoption will increase. The growth is most likely to add impetus to the entire economy that exists beyond the cryptocurrency exchanges.