India has always had an ambivalent relationship with cryptocurrency over the years. Despite its rocky journey to acceptance, we’ve seen signs that government and policymakers are gearing up for the promise of digital assets in recent months. However, the growth of blockchain technology and its myriad of use cases far outpaces the evolution of our policies, and it is clear that India needs to recalibrate its approach to crypto policy-making – redefining the use regulations to promote innovation, rather than functioning as pure safeguards. – to unleash the full potential of the blockchain.
For example, while the Indian government has given a nod of tacit approval to crypto, recognizing them as virtual digital assets (VDAs) taxing crypto-related transactions at 30%, the taxation of digital assets is still significantly higher. high compared to booming developed economies. crypto ecosystems. In this regard, policymakers need to consider how this high tax rate can lead to unintended consequences such as capital flight and a major barrier to adoption and innovation. Additionally, as investors try to understand how their digital assets fit into their overall wealth management strategy, more clarity can be provided to them regarding withholding tax deductible (TDS), and l tax is applied and deducted in crypto-to-crypto trades.
That being said, crypto and blockchain are still nascent industries in India, and greater development and innovation can only happen with continued dialogue between policymakers and industry. The government’s stance towards crypto is encouraging, and the way forward involves greater transparency and smart policy-making that will transform India’s crypto and blockchain ecosystem into a legitimate, credible and internationally respected.
Taxation: a double-edged sword
Crypto’s phenomenal growth over the past year has empowered retail investors and small businesses to trade and fundraise, which has encouraged the growth of a vibrant micro-business ecosystem. Like any other new business, nascent businesses and crypto startups require favorable and business-friendly legislation to foster an environment conducive to growth. While many of these smaller businesses welcome the government’s tacit recognition of crypto, the new digital asset tax comes with limitations that prevent crypto trading businesses from triggering or deferring losses to offset a profit. . For these ambitious and fast-growing companies, this may determine their ability to survive in a hyper-competitive global market, thus hampering the development of India’s blockchain and crypto industry more broadly.
The onerous rules may even motivate illicit means of tax evasion and could deter crypto companies from establishing a base in India to avoid the country’s high taxes. These unintended consequences could see India lose out to neighboring crypto-friendly countries with more favorable regulations. Countries like Dubai, Singapore and Thailand attract large inflows of capital, talent and technology because of their innovation-friendly policies, and their gains are often at the expense of countries like India, with our pool of world-class technology talent and entrepreneurs. .
This is a critical issue for India to address, and to ensure that our country retains the strength and vigor of our tech sector, there is a need for policymakers to look at crypto tax holistically. , understanding its far-reaching impact on our tech industry. To that end, it is ideal, if not necessary, to tax crypto fairly, based on how we tax other forms of assets in the country. By doing so, crypto in India would have a level playing field and a chance to thrive internationally.
Realizing India’s Potential to Become the Crypto Capital of the World
India has always had a vibrant and thriving tech sector, generating over $227 billion in revenue in the last financial year. The country also offers a booming startup landscape and stands as the third largest startup ecosystem in the world with 14,000 new startups created between 2021 and present. As a hotbed of technological innovation, India has all the ingredients to become the crypto capital of the world.
Even amid the uncertainty of regulatory pushbacks and threats of bans, India has seen the creation of two crypto unicorns in 2021, with CoinDCX leading the pack to become the country’s first to surpass the $1 billion valuation. Americans. Funding for India’s booming crypto sector is also accelerating rapidly, surpassing half a billion in investments last year. With India’s crypto ecosystem set to grow to $241 million by 2030, creating over 800,000 jobs, this is an important and influential sector that cannot be overlooked. Especially as the country aims to become a US$5 trillion economy and a global economic powerhouse by 2025, the digital asset sector would play an important driving role in propelling India towards its ambitions.
India’s Promising Crypto Start Should Not Be Wasted
While the way forward for the Indian crypto industry is promising, a major obstacle is the information asymmetry in the understanding of the technology, with policy makers as well as the general public. To this end, DCX Learn was launched to make crypto and blockchain education more accessible to the public, fostering better understanding and bridging the gap between innovators, users and decision makers. We have seen promising results so far, and the growing discourse and sophistication of discussions around digital assets in India bodes well for crypto and blockchain technology in India.
Going forward, a crypto bill with more concrete policies to support the industry would be paramount to establishing a stronger ecosystem and promoting greater technological innovation. The crypto industry is about to become a regulated industry. Therefore, a close relationship between regulators and the industry would establish a safe and secure ecosystem suitable for innovation and progress.
With the speed at which the crypto industry is growing, India must be one step ahead of the competition. It is only with more clarity and open dialogues between regulators and innovators that India’s crypto industry can grow and serve as a pivot for India’s economic ambitions.
This article is written by Sumit Gupta, CEO and Co-Founder of CoinDCX