INDIA: Cryptocurrency Will Be Treated As Commodity

Cryptocurrencies will be recognised as an asset/commodity for all purposes, including taxation, and will be classified according to user case – payments, investment, or utility.


The government plans to define cryptocurrencies in a new draught statute that also suggests compartmentalising virtual currencies based on their use cases.

Cryptocurrencies will be treated as an asset/commodity for all purposes, including taxation, and will be used for payments, investment, or utility depending on the user’s needs.

This will be the first time cryptocurrencies are classified based on the technology they employ, but sources say the government’s focus will be on the asset’s end-use for regulatory considerations.

The measure is also anticipated to spell out the tax treatment for such assets, ensuring that they are properly recorded in the books.

There is no clear definition of whether crypto assets are a currency, a commodity, a service, or anything closer to equity, whether for tax or other reasons.

This is a gap in the law, because without a definition of an asset, the question of how it should be taxed or governed arises.

A user claiming himself as a tech lawyer showed his concern over the crypto bill and posted a tweet regarding it.

REGULATION OF CRYPTOS

Crypto exchanges had proposed regulatory measures to regulate cryptocurrencies, including recognising cryptocurrencies as digital assets and establishing a system to register homegrown exchanges.

They urged that India recognise crypto tokens as digital assets rather than currency, and that policies on exchange ownership, KYC, accounting, and reporting standards, among other things, be clarified.

“There are more than 5,000 different cryptocurrencies, each with its own different legal characteristics. Therefore, rather than the cryptocurrency technology alone, regulation should be tailored according to the end-use or activity of a particular token.”— Jaideep Reddy, leader – technology law at law firm Nishith Desai Associates.

Apart from that, if crypto assets are classified as commodities, the returns may be taxed as business income at ordinary income tax rates in the hands of investors. The Reserve Bank of India (RBI) has previously raised concerns about cryptocurrencies.

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