Can the Budget dodge Bitcoin? Why FM needs to clarify on cryptocurrencies
Can they be used legally for paying for goods and services? Can these be considered as currencies at all? Or are these to be treated as a commodity?
Bitcoins and the underlying blockchain technology have literally created a financial Tsunami. The smell of easy money and the psychological pull of free money is attracting normal individuals the world over. Indians are not immune either, and lots of them have started trading Bitcoins and other similar cryptocurrencies, such as Ripple and Ethereum. Some Indians are involved in mining cryptocurrencies as well.
Currently, there are no popularly known businesses which accept Bitcoins or other cryptocurrencies for payment transactions with consumers. However, several businesses and financial institutions are experimenting with using the Blockchain technology, which underlies all cryptocurrencies, for various kinds of “smart transactions”.
Despite all this, there is still a lot of uncertainty and lack of clarity on the legal status of Bitcoins and other cryptocurrencies in India. Can they be used legally for paying for goods and services? Can these be considered as currencies at all? Or are these to be treated as a commodity? Are these an investment asset? Can these be treated as movable property? What is the origin of these currencies (or property or commodity)? Does it depend on the location of the servers or the computer mining it or the person(s) involved in mining it? Can they be considered to be held in India or abroad depending on the location of the wallet?
Depending on various answers to the above questions, the existing laws about legal tender, commodity trading, securities trading, GST, FEMA, LRS, Anti-Money Laundering, Benaami Property, Black Money Act, Income Tax etc. will come into play.
It is right for the citizens of a technological superpower to expect proactive clarity from the government on various aspects of a new technology, such as Blockchain and its resulting derivatives, such as, Bitcoins and other cryptocurrencies.
Budget 2018 is a good place to start. It can provide clarity on certain aspects of the technology and related tokens or cryptocurrencies. The following are the aspects which it can potentially address:
• How will Blockchain tokens which claim to be “currencies”, i.e. “a means of exchange” be treated for tax purposes?
• Will it be treated as a “foreign currency”? If so, what is the tax treatment on gains or losses for persons holding Bitcoins or other cryptocurrencies?
• Will it be treated as a “commodity”, albeit “digital”? If so, what is the tax treatment? Can the platforms allowing trading in it be considered as commodity exchanges? Will CTT be applicable?
• Will it be treated as “barter” or “exchange of goods”? What is the tax treatment?
• What about cryptocurrencies which have been mined in India or by Indians?
• What about cryptocurrencies which have been originated in India, starting from the Blockchain platform, and the initial currency too is issued from India?
• Can the digital tokens which do not claim to be “currencies”, be treated as “securities” (depending on their use), if they are used for crowdfunding or other fundraising activities? Will STT be applicable? What about income tax treatment?
• Should Blockchain Tokens be treated as capital assets and typical capital gains treatments be applicable to them?
The above are some of the starting pointers and possibilities which can be addressed in Budget 2018. Of course, it will require simultaneous modifications to other laws and will come under the purview of other financial institutions, such as, RBI and SEBI.
Since Indian technology companies, Indian citizens and people of Indian origin are at the forefront of many evolving technologies related to the Blockchain, and Blockchain technology is likely to have a huge global impact in the future of technology, commerce and global trade, it will be important to provide clarity to this ecosystem. The baton is in your court, Mr. Finance Minister!
Dr. Vikas V. Gupta is CEO & Chief Investment Strategist, OmniScience Capital