Can Bitcoin replace the Indian Rupee?

#bitcoin #inr #tax #budget

Mima Natekar Feb 10 2021 · 2 min read
Share this

What is Bitcoin and cryptocurrency?

Bitcoin is the world’s most popular cryptocurrency today, but not legally feasible for regular usage in every country on planet Earth. It appears to be one over almost 4000 cryptocurrencies. A cryptocurrency is a generic name for virtual currency, and Bitcoin is the brand, in other words, one can imagine cryptocurrency as smartphones and Bitcoin would be an iPhone.

Each and every bitcoin transaction is recorded in a public list which is known as “Blockchain”. A sophisticated record-maintaining system that is run by several users in a decentralized manner is called Blockchain.

Are Indians investing in Bitcoins?

In April 2018, RBI virtually banned cryptocurrencies in India and completely prohibited all regulated entities such as Banks from trading in them. This action was enforced because of several reasons, such as terror funding, money laundering, and revenue loss to the government due to its non-taxable nature.

The dark side of mining bitcoins using blockchain technology is that when a user exchanges this cryptocurrency, the user’s identity does not get revealed. He or she can buy anything on the dark web without revealing one’s identity and this poses a real danger to even think of as a replacement of the Indian rupee.

In March 2020, the Supreme Court released a statement that such curbs are illegal. A survey conducted by a Research platform showcased that 93.8% of Indians in the age group of 18 to 55, invested in cryptocurrencies prior to the upliftment of the ban by the Supreme court. 64.8% of the respondents believed that trading in such cryptocurrencies helped them pave their path towards financial freedom.

There has been a rising exponential interest in bitcoins and other cryptocurrencies ever since the RBI ban has been quashed by the Supreme court. Covid-19 threats also could not curb the growing local crypto community in India.

Established peer to peer (P2P) marketplaces have been favorites such as Localbitcoins, Paxful and Bitbuddy are used for this trading purpose.

Are bitcoins taxed in India?

The Indian Government has still not introduced any taxable reforms or policies of bitcoins and other cryptocurrencies. Most economists, investment bankers, financial analysts, and professionals were hoping for some remuneration in the budget of 2021, but to no avail. This appears to be a lost opportunity to the current Government in terms of revenue and could have been monetized in the following circumstances:

1)      Bitcoins which are self-generated capital assets can be considered as an investment that is being transferred in exchange for real currency because the appreciation in value would give two types of gains- long- and short-term capital gain. The long-term capital gain can be taxed at a rate of 20% while the short term would be taxed at an individual slab rate. (Provided income tax authorities consider Bitcoin as a capital asset)

2)      Bitcoins can be held as stock-in-trade being transferred in exchange for real currency as the income from bitcoins trading activity would give rise to income from a business, thus, profits from business would be taxable as per individual slab rates.

Conclusion

Replacing the Indian rupee will be a bet for the long run and a humongous challenge. Hopefully, the government will understand the potential and with upcoming technological advancements in cyberspace and finance domain, this trading affair will be regularised for the perusal of every Indian citizen.

Comments
Read next