With all the buzz around bitcoin, did the Budget just do a buzzkill? Enthusiasts of cryptocurrency in India have come up with different interpretations of the finance minister's Budget speech, with some claiming that it had been declared illegal.
What the FM actually said was that the government did not consider "cryptocurrencies legal tender or coin and will take all measures to eliminate use of these crypto assets in financing illegitimate activities or as part of the payment system".
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For the uninitiated, cryptocurrency is a digital currency where encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
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Nischint Sanghavi, head of exchange at Zebpay, which is a bitcoin exchange, points out that the speech simply reiterated the RBI's stand that cryptocurrency is not recognised as legal tender in India.
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"This is being misreported as bitcoin is illegal. This is not true," said Sanghavi, adding that bitcoin exchanges in India adopted the highest standards of KYC with transactions that are transparent and via bank accounts.
Richie Sancheti, partner with the law firm of Nishith Desai Associates, said a case-to-case view may need to be taken on whether income from virtual currency is treated as "capital gains" or "profits and gains of business" keeping in mind the facts and circumstances of each transaction.
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"In any case, given the level of scrutiny for tax compliance, it is advisable to ensure that inventory of cryptocurrency held is valued accurately and all taxes paid as and when due," added Sancheti. If the bitcoins are held for regular trading and the transactions are substantial and frequent, the net profits on sale of bitcoins would be business income.
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With high interest from investors, cryptocash is already under the tax lens. Last month, the I-T department sent notices to those transacting in cryptocurrency. Clarity was expected in this budget, but now there are fears of more litigation.
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Jaitley, however, made it clear that the government is not against blockchain, the technology that underpins cryptocurrencies. "The government will explore use of blockchain technology proactively for ushering in the digital economy," he said.
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The Blockchain and Cryptocurrency Committee of India (BACC) — a lobby grouping of cryptocurrency exchanges operating in India —welcomed Jaitley's remarks, viewing them as a possibility of government regulation in the future to check illicit activity.