2023 was a good year for crypto prices as they rose significantly, with Bitcoin spiking by 165 percent. Though still lacking explicit legitimacy, digital currencies are not illegal either. When the government introduced a tax regime for virtual digital currencies (VDAs) in 2022, including a 1 percent TDS on crypto transactions, some saw it as an implicit approval. However, it led to a drastic decrease in the trading volumes in Indian crypto exchanges, sometimes up to 90 percent.
Venkatesh R, Senior Vice-President and Public Policy Head of CoinSwitch, says “The VDA tax structure had an unintended consequence of driving the majority of the trade outside India, thereby defeating the very purpose of which the tax was introduced.” To avoid the strict provision, some Indian crypto exchanges shifted their business abroad. More recently, the Financial Intelligence Unit (FIU) issued show cause notices to nine offshore cryptocurrency operators, including Binance, for not abiding by Indian regulations and wrote to the ministry of electronics and information technology to block their URLs.
This year marked some regulatory milestones in terms of cryptocurrency. One of the major ones was the adoption of a roadmap for crypto assets regulation by G20 as proposed by the IMF and Financial Stability Board (FSB). Additionally, 28 crypto service providers registered with the Financial Intelligence Unit. Venkatesh R adds, “Amongst the most significant milestones is the reporting entity status granted to VDA Service Providers (VDASPs) under India’s PMLA and to establish the FIU-IND as the regulator for this purpose.”
Rajagopal Menon, Vice President of WazirX, notes that this registration has made it mandatory for users on these platforms to authenticate their identities through KYC. Gaurav Mehta, CEO of Catax – Simple Crypto Tax, adds that G20’s recognition of the borderless nature of cryptocurrencies is another significant milestone.
The crypto industry leaders believe that cryptocurrencies have great potential and therefore call for a full-fledged regulatory framework and reduction of TDS rate to 0%. According to Rajagopal Menon, the high TDS rate has caused investors to move to foreign exchanges. Gaurav Mehta emphasizes the need for clear and forward-looking guidance on the treatment of cryptocurrencies, backed by robust regulations. Venkatesh R from CoinSwitch adds that a strong regulatory framework, as in Japan, would protect consumers from crypto scams and fraudulent activities.
