Reply To: What’s the reasoning behind India’s finance ministry making cryptocurrency trading complicated despite the growing belief that blockchain technology holds the key to the future?

As per insights from the Blockchain and Crypto Assets Council, India’s cryptocurrency user base has exceeded 10 million, with the market value surpassing ₹6 lakh crore. While the Indian cryptocurrency market operated without regulation until recently, Budget 2022 saw Finance Minister Nirmala Sitharaman introducing a 30% tax on virtual digital assets like cryptocurrencies, effective April 1. Additionally, transactions involving the transfer of virtual digital assets now incur a 1% tax deducted at the source (TDS), with taxation on gifted assets shifting to the recipient starting July 1.

Despite these tax guidelines bringing virtual digital assets under regulatory oversight, many specifics remain unclear. Moreover, cryptocurrencies lack legal tender status in India, prompting heated debates regarding their validity and future among bitcoin enthusiasts and policymakers alike.

Some speculate that Indian regulators liken cryptocurrency trading to gambling or betting, both taxed at 30%. However, this comparison raises eyebrows due to the vast disparities between the two sectors. Nonetheless, the speculative nature of cryptocurrencies, characterized by volatility, could prompt regulators to enforce a high tax slab to safeguard less-informed investors from potential losses, restricting participation to those with adequate capital and knowledge.

Nevertheless, the Indian government shows awareness of blockchain technology’s potential. Efforts to integrate blockchain in the public sector are underway, leveraging existing digital infrastructure like Aadhaar and UPI. The digitization drive in India over the past decade has laid a robust foundation for testing blockchain across various industries, promising enhanced governance, ease of doing business, and empowerment of citizens through transparency and decentralization.

Moreover, blockchain holds the potential to revolutionize sectors like agriculture by improving contract administration, procurement, and accountability. The Reserve Bank of India (RBI) plans to launch a digital currency, aiming to bolster the digital economy and currency management efficiency. The introduction of a digital rupee could facilitate social benefits and targeted payments, with possibilities for pre-programmed Central Bank Digital Currencies (CBDCs) to streamline subsidy disbursements.

As India navigates regulatory measures for existing decentralized alternatives and embraces blockchain’s decentralization benefits, regulators strive to strike a balance between overseeing crypto trading markets and harnessing blockchain technology’s potential.