On June 1, Finance Minister Nirmala Sitharaman said India was “rapidly advancing” digital financial technology, just as it launched a digital rupee pilot program in the wholesale sector.
Six banks are participating in the experiment, which is expected to improve the efficiency of the interbank market. The country’s central bank is planning the first pilot of a CBDC for the retail sector within two months, targeting a private group of users.
Sitharaman’s remarks were made at an annual event organized by the Indian Council for International Economic Relations Research (ICRIER) at the upcoming G20 meeting.
Interestingly, India is gearing up for a 20-year term as G200 chair, following the handover from Indonesia in September, and is expected to host at least 20 meetings during its term as chairperson. G2 is a forum attended by the world’s major developed and developing countries. Covering Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, UK, US, and Europe. Union (EU).
Undoubtedly, digital assets and the myriad related assets, such as crypto, stablecoins, central bank digital currencies (CBDC), non-fungible tokens, or NFTs, and decentralized finance (DeFi) are among the most popular topics within the financial services sector as regulators around the world increase their efforts to regulate the nascent industry. And for better or worse, crypto is now officially one of the main agendas of the G20.
Cryptocurrency will be a priority for India as G20 chair
India’s Finance Minister Nirmala Sitharaman has stated multiple times over the past few months that crypto asset regulation will be one of the key focus areas during the country’s two-year G20 presidency starting next month.
However, citing the borderless nature of crypto trading and the risks cryptocurrencies pose to global financial stability, Sitharaman called for global cooperation on crypto asset regulation.
“Single countries cannot succeed if they try to regulate crypto assets in individual silos. We need all G20 countries to come together to consider how best to do this,” she said at ICRIER’s 14th Annual International G20 Conference.
Additionally, in her opinion, the International Monetary Fund (IMF), Financial Stability Board (FSB), and Organization for Economic Co-operation and Development (OECD) will all work with all G20 member countries to ensure the regulation of cryptocurrencies. Assets you need.
“I know that efforts have been made by the FSB, the OECD, the IMF, and the Bank for International Settlements (BIS). So to bring everyone together and put it on the table and allow members to have a meaningful conversation about it. “There is a need,” she said.
Just early last month, the intergovernmental organization OECD developed a cryptocurrency framework in response to a request from the G20. The OECD has presented the Crypto Asset Reporting Framework (CARF), which aims to automatically exchange information about cryptocurrencies across national borders.
Following this, the FSB published a draft framework for the international regulation of activities related to crypto assets, a first for the international community. A few days later, Sitharaman reportedly met with OECD Secretary-General Matthias Cormann, which was seen as a step in the direction of cryptocurrency regulation.
Sitharaman went on to say that regulating cryptocurrencies is in India’s national interest as it is difficult to trace traces of transactions. She said it’s unclear whether cryptocurrency transactions are being used to fund terrorism, drugs, or “just to game the system.”
At the same event, V. Ananta Nageswaran, Chief Economic Adviser to the Government, said, “A consensus-based solution to accelerate the scale and scope of the international community’s response to many cross-border challenges, including the regulation of virtual assets. ”. This would be India’s second goal as its G20 Presidency.
Indian tax authorities propose new tax rules for virtual currency income
Currently, virtual currencies are not regulated in India. Looking back to 2018, the Reserve Bank of India (RBI) banned banks from providing services to crypto companies, but this was overturned by India’s Supreme Court in 2020.
However, non-fungible tokens (NFTs) have not yet received the same level of scrutiny as cryptocurrencies, and understandably suffer from similar legal uncertainties.
India was scheduled to introduce a virtual currency bill in the winter parliament, but the bill was never introduced in the House of Representatives. As of now, there is still no law regulating cryptocurrencies in India, but as India does not want to miss out on the gold rush, Sitharaman announced that India will tax all digital assets at the highest tax rate of 30% without any deductions. did. or exemption.
But on May 1, the Indian tax authorities proposed new tax rules for crypto income, which are likely to impact a large number of people in the country who invest in cryptocurrencies. The new rules are said to be in line with the government’s efforts to increase transparency and accountability in the financial system.
Under the new rules, all income from cryptocurrency transactions will be taxable, with significant implications for those who hold virtual digital assets (VDAs) or cryptocurrencies and may invest in decentralized autonomous organizations (DAOs). I’ll give it.
The Central Board of Direct Taxes (CBDT) has proposed a new Common Tax Return (ITR) for a more seamless integration of existing income tax returns. However, its focus is on disclosing income from crypto assets and foreign stocks and bonds held by resident Indians.
Soliciting public comments
Under the new proposal, the CBDT will collect information from Indians residing abroad, including the nature of the business, business relationships in India, permanent establishment (PE), number of users in India, and whether the entity has a significant economic presence in the country. We are seeking information about whether or not you have a feeling of sensibility (SEP). A country, especially a business earns income.
This could impact crypto exchanges that are not incorporated in India but have Indian traders, said Rajat Mittal, a tax advisor who advises crypto businesses at India’s Supreme Court.
“Many Indian customers are using these exchanges and this could potentially increase the economic presence (SEP) of these exchanges. In such cases, an exemption from equalization tax may be sought,” he said.
In 2016, the Equalization Tax, a foreign-owned business tax, was introduced to tax digital transactions and income earned by foreign e-commerce companies from India. In recent years, India has continued to expand its tax base on non-resident digital entities.
In the draft, under income from business or profession, the CBDT asks about net income and income from virtual digital assets and transfer of virtual digital assets. Furthermore, he also mentions the current crypto asset tax rate of 30%.
The CBDT is currently inviting comments from stakeholders and the public on the proposed changes to the tax format until 15th October 2022. The new proposal also asks taxpayers about investments in unincorporated entities. DAOs fall into this category.
The legal status of virtual currencies in the country is unclear, and India has not introduced any virtual currency-specific regulations, but residents of India are subject to a 30% tax on transfers of VDAs under the Income Tax Act, of 1961. Taxes, surcharges, and suspension fees must be paid. (Income Tax Law).
Additionally, the amendments to the Finance Bill 2022 also direct that 1% TDS (tax at source) be levied on the purchase, sale, or gifting of virtual assets by Indians. However, these decisions by the government have been criticized not only by the crypto industry but also by crypto enthusiasts, who consider it a disastrous tax policy.