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India Is Eyeing to Impose GST on Foreign Crypto Exchanges

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India is considering imposing a “reverse charge” on virtual digital asset investments made through foreign platforms.

A reverse charge is a tax owed by the recipient of goods or services rather than the supplier.

The burden of goods and services taxation (GST) will rest on an Indian investor who purchases services from a domestically unregistered crypto exchange.

“If a crypto exchange is situated in India and is not subject to GST, then the receiver will be obligated to pay GST on a reverse charge basis,” a source told Business Today TV.

According to reports, depending on commissions gained through crypto transactions, the percentage of this reverse charge maybe 18 percent.

India might blow up the crypto growth in the country

India is considering expanding the scope of its goods and services tax (GST) to include cryptocurrency. While the judgment is expected this month at the GST council, investors have already been paying 30% tax on cryptocurrency earnings since April 1.

“[The government] is unlikely to tax crypto on the overall value of the transaction, per se,” the source added to Business Today. The conversations are at a point where more thought is required.”

The Reserve Bank of India (RBI) warned the Parliamentary Standing Committee on Finance recently that bitcoin could lead to “dollarization.”

The problem with using foreign currency in any economy, according to Jaijit Bhattacharya, president of the Centre for Digital Economic Policy Research, is that the central bank lacks authority over the currency when using monetary policy tools.

Meanwhile, the RBI’s tough position on cryptocurrency continues to cause investors legal concerns.

Despite such worries, the Confederation of Indian Industry (CII) president Sanjiv Bajaj stated in another interview that the business should be controlled rather than outlawed. The Indian government is actively developing a cryptocurrency policy. However, crypto earnings are already subject to a 30% tax rate. On July 1, a 1% tax deducted at source (TDS) will be imposed on cryptocurrency transactions.

Crypto Might Lead To Dollarization of Indian Economy, Says RBI Officials

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The Reserve Bank of India (RBI) is said to be worried about cryptocurrency acceptance, stating that it will lead to the “dollarization” of the Indian economy.

According to an unidentified source mentioned in a Monday piece in the Indian edition of the Economic Times, the RBI is concerned about cryptocurrencies dominated by the US dollar losing market share from the Indian rupee.

According to the magazine, RBI officials, including Governor Shaktikanta Das, held a briefing to the Parliamentary Standing Committee on Finance this week. They emphasized their pessimism about the possible influence of cryptocurrency on the financial sector. According to an unnamed source:

“Almost all cryptocurrencies are dollar-denominated and issued by foreign private entities, it may eventually lead to dollarization of a part of our economy which will be against the country’s sovereign interest.”

RBI thinks that crypto might undermine the economy

They cautioned that “it will substantially impair the RBI’s ability to establish monetary policy and govern the country’s monetary system.”

The RBI was said to be irritated by the prospect of digital assets being used in cross-border transactions rather than the rupee, and the typical anti-crypto cliches of terror funding, money laundering, and drug trafficking were also highlighted.

The RBI has shown an anti-crypto attitude twice this month, with Coinbase CEO Brian Armstrong stating last week that the RBI forced the exchange to shut down its United Payments Interface (UPI) in India.

Since announcing plans to regulate the business in December, it appears that the Indian government is not fond of digital assets and has adopted a cautious approach to digital assets.

On April 1, the government implemented a 30% tax on digital asset ownership and transfers, as well as a slew of other stringent taxation requirements based on gambling and lottery ticket win legislation.

In the 10 days following the legislation’s introduction, trading volume on major Indian exchanges fell by as much as 70%.

DeFi In The Spotlight: Indian Authorities Mulling 20% TDS

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Indian Tax regulators are reportedly exploring ways to bring income generated from crypto platforms operating outside India under the lens, sources familiar with the matter said.

According to a local news source, India’s Central Board of Direct Taxes [CBDT] is planning to impose a 20% tax deducted at source [TDS], an equalization levy on such transactions and interest income generated by Indians.

The new rules are targeted at those who have not submitted their PAN card details [Permanent Account Number], a unique ten-character alphanumeric identifier, an informed official revealed.

Speaking on the upcoming development, Girish Vanwari, founder of tax advisory Transaction Square noted,

“For the tax department tracking these transactions is very crucial. The government could slap a 5% additional tax in the form of an equalization levy on any transaction where one of the persons is not based in India and has not submitted their PAN card or other tax details. “

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DeFi In The Spotlight: Indian Authorities Mulling 20% TDS 2

After the stiff tax came into effect, many Indians were on the lookout for alternative platforms to earn income from digital assets. At a time when decentralized finance started gaining a foothold, the proposed move might jeopardize the already tax-burdened crypto industry.

If that wasn’t enough, India’s IT cell now demands customer records should be stored for at least 5 years.

Indian IT body turns its attention to Crypto Exchanges

In a recent development, India’s IT body has directed, virtual asset service providers, virtual asset exchange providers, and custodian wallet providers to maintain all information obtained from the Know Your Customer [KYC] process and financial transactions records for a minimum of five years.

As per the press release, the Computer Emergency Response Team or CERT-In can demand this information for the purposes of “cyber incident response, protective and preventive actions related to cyber incidents.”

The department said this will help “ensure cyber security in the area of payments and financial markets for citizens while protecting their data, fundamental rights, and economic freedom in view of the growth of virtual assets.”

“Any service provider, intermediary, data center, body corporate and
Government organization shall mandatorily report cyber incidents to CERT-In within 6 hours of noticing such incidents or being brought to notice about such incidents,” it added.

The new directions would go into effect from late June, it said.

Indian Banks Approach NPCI to Receive Clarity on Crypto UPI Payments

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Banks in India have contacted the National Payments Corporation of India (NPCI), a government agency under India’s Central Bank Reserve Bank of India that is responsible for operating retail payments and settlement systems in the country.

They contacted NPCI to clarify the relationship between cryptocurrencies and the country’s Unified Payments Interface (UPI) platform.

Local banks recently convened to request that the National Payments Corporation (NPCI) issue a formal guideline prohibiting the use of UPI payment systems for buying and selling digital assets.

The decision comes after Coinbase, a US-based crypto exchange recently opened its crypto trading services in the country and declared that its CEO, Brian Armstrong, would accept UPI payments for crypto transactions.

The ambiguous crypto situation in India

On April 7, Coinbase began offering trading services in India. Following that, it announced that users in the country would be able to purchase cryptocurrencies through the UPI system.

The NPCI fined Coinbase as a result of this, and the authority investigated the company. Shortly after, the National Payments Corporation (NPCI) made an official statement explaining that it is not aware of any cryptocurrency exchange in the nation that uses UPI.

Following the NPCI’s explanation, all major crypto exchanges in the country blocked UPI payments on their sites, including billion-dollar firms CoinSwitch Kuber and CoinDCX.

Major banks have purportedly suspended all online banking alternatives for crypto transactions.

Banks have now requested official guidance from the NPCI on how to proceed with adopting the UPI system for cryptocurrency transactions.

According to sources, the NPCI is unlikely to release any of these orders very soon.

NPCI refused to limit money transfers for cryptocurrency trading in May of last year instead of leaving it up to individual banks to assess their own risk threshold.

Banks in the country were prohibiting various crypto exchange and investment transactions during that time.

The NPCI’s newest statement, released earlier this month, has reignited the tense relationship with cryptocurrency exchanges. Local banks are now hesitant to supply crypto exchanges with deposit channels.

The use of cryptocurrencies by 20 million Indians is being harmed by confusion in the banking system. India’s supreme court overturned the RBI (Reserve Bank of India 2018) decision to prohibit banks from providing services to crypto businesses in March 2020.

CoinDCX’s valuation doubles following $135M Funding

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India’s leading trading platform CoinDCX has doubled its valuation to $2.15 billion after a fresh $135 million capital injection, with an aim to spread its footprint in the web3 and the crypto industry in general co-founder Neeraj Khandelwal tweeted today.

The Series D financing round was spearheaded by Steadview and Pantera Capital. Others who backed the funding exercise were Coinbase Ventures, Kingsway, DraperDragon, Republic, and Kindred Ventures also participated in the Mumbai-headquartered startup’s new funding. To date, CoinDCX has raised more than $245 million.

In an interview with a local news outlet, Sumit Gupta CEO of CoinDCX told that the recent funding exercise demonstrates the bullish sentiments of global investors in the Indian crypto ecosystem despite domestic regulatory challenges.

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CoinDCX's valuation doubles following $135M Funding 4

The news also comes weeks after India’s crypto taxation rule came into effect. The rule imposed 30% on income generated on digital assets and also includes a 1% tax deduction at source for each trade. This resulted in a drastic reduction in the daily trading volumes across crypto exchanges as many investors and traders continue shunning crypto assets.

Admitted to being hit by the move, Gupta noted that the 1% TDS has made it somewhat less feasible for some High-Frequency Trading [HFT] to perform normally. “We continue to see new users come to the platform, but the growth is not as high as it used to be, say, two months ago,” he added.

CoinDCX to double down on its compliance efforts

The startup plans to double down on its compliance efforts, he said. “We will do whatever it takes to give more comfort to the regulators,” he said.

The crypto trading platform became the first Indian crypto firm to attain the unicorn status last year having amassed over 10 million users. Besides enabling users to purchase tokens for as low as 100 Indian rupees [$1.3], CoinDCX also provides margin trading and the option to stake digital assets.

CoinDCX, in collaboration with Facebook co-founder Eduardo Saverin’s B Capital, is also working to educate the retail investors and help contribute to expanding the local ecosystem, the exec said. The startup plans to introduce educational content and byte-sized videos in its app, Gupta said.

Nirmala Sitharaman Concerned About Money Laundering and Terror Financing Revolving Crypto

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Union Finance Minister Nirmala Sitharaman stated on Monday, April 18, that the main danger associated with cryptocurrencies is that it might be used for money laundering and terror funding, adding to the already shaky cryptocurrency sector in India.

“The biggest concern for all countries across the board would be the element of money laundering and the use of such currency for financing terror,” Sitharaman warned.

Nirmala Sitharaman was addressing at an International Monetary Fund (IMF) conference.

“I think regulation using technology is the only answer. Regulation using technology will have to be so adept, that it has to be not behind the curve, but be sure that it is on the top of it. And that’s not possible if any one country thinks that it can handle it. It has to be across the board,”

Union Finance Minister, Nirmala Sitharaman

Nirmala Sitharaman’s stand on crypto

On the first day, Sitharaman spoke at a panel discussion on “Money at a Crossroad,” moderated by IMF managing director Kristalina Georgieva, about India’s digital performance and the government’s efforts to build digital infrastructure over the past decade, emphasizing the country’s growing digital adoption rate.

Sitharaman also stated that India has the greatest startup environment during the conversation.

“Fintech businesses account for one out of every four startups, and they are quickly becoming unicorns. In the previous 2-3 years, fintech has produced 20 unicorns,” she noted.

Despite all of this, the 30% tax and 1% TDS are unjustifiable and way out of the line. It is clear that a country that once was skeptical about cryptocurrency started taxing it at 30% without an option to set off the losses.

An Indian MP clearly said that he wanted to demotivate the youth from investing in cryptocurrencies and suggested a 50% tax on crypto. India’s stance will definitely kill the industry, and the potential startups will flourish elsewhere.

The not-so-pleasing crypto taxes have raised concerns among the investors and exchanges where the volume of trades in the crypto exchanges has plummeted drastically. Indian government is also planning to release its own digital rupee soon.

Indian MP Suggests to Increase Crypto Tax by 50%

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During a live television broadcast of a parliament session, Sushil Kumar Modi, Indian MP stated that the government should raise taxes on cryptocurrency earnings to 50%.

He urged that the government should discourage what appears to be a growing interest in cryptocurrencies among the general public.

According to reports, the 70-year-old former Finance Minister of Bihar (an Indian state) stated that his proposal is motivated by the fact that cryptocurrencies are a type of gambling that should be prevented before wreaking havoc on the Indian people.

He also stated that he is following in the footsteps of countries like Japan, Germany, Austria, and others that have slapped 40-50 percent taxes on cryptocurrency.

Indian MP’s decision to kill the crypto industry

When questioned about GST (goods and services tax) on cryptocurrencies, the Indian MP replied that when it comes to dealing with cryptocurrencies, such as gambling transactions, he would prefer taxes to be levied on “the entire transaction.”

However, he concluded that this is up to the GST Council to decide.

“Are the terms ‘.com’ and ‘internet’ identical?” When asked if banning cryptocurrency will stifle creativity among India’s youth, Modi replied, “I don’t think so.”

He added to his conversation that the Indian government supports the Blockchain business and wants to use it for other purposes, such as health data, property records, and so on, but not for cryptocurrencies.

In the past, India has been known to be hostile to cryptocurrencies. The Reserve Bank of India (RBI), India’s central bank and regulatory agency prohibited the use of cryptocurrencies in 2018. A supreme court judgment in March 2020, however, overturned the restriction.

The Indian MP’s suggestion seems to be indeed a shock to Indian investors.

Between 2020 and 2021, this move witnessed a massive flood of individuals into the crypto industry, with WazirX, India’s largest exchange, seeing a user base gain of 1735 percent from 2020 to 2021.

Since then, the RBI has continued to oppose cryptocurrencies, with an official calling for a blanket ban on all digital assets two months ago, claiming a “danger to macroeconomic stability.” The RBI also recommended leaders not do business with crypto exchanges in May 2021.

Indian crypto tax of 30% on crypto gains and a 1% TDS came into effect on April 1.

Indian Govt’s Think-Tank Releases 64 Page SOP To Deal Crypto Crimes

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A major Indian think-tank called the Bureau of Police Research and Development [BPRD] has prepared a 64-page first-of-its-kind Standard Operating Procedure outlining Investigation processes/Methodologies for crypto-related cyber crimes. Local sources say the guidelines provide a methodology for investigation as well as seizure and preservation of cryptocurrencies.

Speaking on the issuance, BPRD Director Dr. Karuna Sagar stated,

“As more and more users access the internet and are embracing technology, cyber criminals are looking at crypto-currencies for transactions. With the gaining popularity and awareness amongst the people of India with respect to cryptocurrencies such as Bitcoin, Ripple, Dogecoin, etc., many have started investing part of their time and money in these virtual currencies.”

One of the guidelines directs the law enforcement agencies to have their own crypto wallets to store seized digital assets. The agencies are required to work with the crypto exchanges to block the wallet or reset the keys to stop the transactions. This is to ensure that the stolen assets are immediately transferred to the official wallet.

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The SOP also contains some strict norms like prohibiting conversion of seized cryptocurrency into local currency, warning that it might cause legal repercussions to the department due to the fluctuation in rates of the cryptocurrency in the market.

The detailed SOP aims to bolster Indian authorities’ fight against crypto criminals

In case the crypto wallet is not encrypted, the SOP said, the Indian authorities have the right to complete access, provided proper warrants have been obtained for the seizure of the device. If the bitcoin wallet is encrypted, working with the suspect to give away the passwords is the easiest method of access. 

In scenarios such as no possibility of immediate access to the suspect’s wallet or the latter’s refusal to provide a password or encryption key, the device should be switched to airplane mode or placed in a faraday bag to prevent tampering, it added.

At present, there are no national guidelines on cryptocurrency-related cases, due to which Indian enforcement agencies often struggle, particularly in seizures as well as tracking scammers. Although the government has started taxing earnings from crypto transactions at the rate of 30%, India is yet to regulate cryptocurrencies, and investigations in such cases are probed through existing cyber laws.

India Might Halt Its Crypto Framework for Now – But Why?

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According to a Bloomberg article, India would draught cryptocurrency laws only once a worldwide agreement on their regulation emerges.

As per a source close to the news agency, the administration has no plans to pass legislation to regulate or tighten rules anytime soon.

Finance Minister Nirmala Sitharaman announced intentions to tax the profits from the transfer of virtual assets at 30% in her Budget 2022 proposal, bringing the Indian government one step closer to resolving uncertainty regarding the legal status of crypto transactions.

It had intended to introduce legislation to clarify the government’s position on the issue.

India’s unparalleled decision for a hefty 30% tax

From April 1, the Indian government will impose a flat 30% tax on the transfer of virtual digital assets (VDAs) or cryptocurrency.

In addition, each transfer of such assets will be subject to a 1% tax deducted at the source (TDS). The TDS provision, on the other hand, will go into effect on July 1.

In January, in his visit to the World Economic Forum, Prime Minister Narendra Modi stated that a globally consistent strategy for cryptocurrencies is required, and individual country initiatives will not suffice.

After the country’s top court overturned the Reserve Bank of India’s regulations in March 2020, crypto investments exploded in India.

According to research released in October by Chainalysis, a crypto-analysis business, the Indian market expanded 641 percent from July 2020 to June 2021.

FM Sitharaman highlighted during the budget session that taxing virtual assets does not imply that the government is legalizing them.

“At this moment, we are not doing anything to legalize or outlaw it,” Sitharaman said in response to a question in the Rajya Sabha on the plan to collect a 30% tax on income from virtual assets.

The decision to tax crypto at 30% was questioned by many and had sent waves of disappointment among individual investors, traders and miners.

Nischal Shetty, CEO of Wazirx, stated that the government needs to rethink the tax policy, or it will blow off the investors who might move off to foreign exchanges. At the time of writing, 1,02,982 people have signed a petition urging the government to rethink this unreasonable tax policy.

“India Will Lose Web3 If Crypto Entrepreneurs Leave”-WazirX Founder

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India’s finance ministry recently clarified that it won’t allow crypto investors to set off losses incurred from one cryptocurrency against the gains from another crypto asset. On top of that, 30% tax on capital gains and a 1 percent tax deducted at source [TDS] proved too much for many crypto bigwigs who are already ringing alarm bells.

One of them is Nischal Shetty, CEO of WazirX. Expressing his thoughts, the top exec tweeted that the Indian government needs to reconsider their stance on digital assets and warned that if crypto entrepreneurs leave, the nation would severely lose homegrown talent and stands to miss out on the Web3 revolution.

Four years back, ZebPay, once the nation’s dominant exchange moved to Singapore. Sandeep Nailwal, Polygon’s co-founder relocated to Dubai in 2020.,told Bloomberg, “The brain drain is absolutely crazy.”

Not only entrepreneurs, but many young blockchain developers are also flocking to friendlier nations. BuyUCoin CEO Shivam Thakral told recently in an interview that more than 30 engineers left to work in the US, Singapore, and Dubai.

Vivek Belgavi, a partner at PWC, said “Right now, many Indian crypto firms, developers, and founders are trying to move to Dubai owing to its proximity to India along with its transparent and friendly taxation regime.

Can India reverse this brain drain?

On March 24, the government proposed tightening the taxation norms by prohibiting the set-off of any losses with gains from other virtual digital assets or VDAs. However, the crypto tax legislation became a law on March 25, without accommodating some of the concerns raised by the community. Due to this, many in the industry feel that the exodus might further escalate in the near future.

Siddharth Sogani, founder and CEO of Blockchain analytics firm Crebaco, recently tweeted that India would see the biggest brain drain in history in the next 8-12 months. “Making crypto difficult is not going to stop innovation. The smarties will move offshore. And you know what, these smarties will make billion-dollar enterprises in the crypto space,” his tweet read.

Polygon’s Nailwal said he wanted to live in India and promote the Web3 ecosystem but noted, it would require a great deal of effort for India to get its talent back home despite being home to the largest base of crypto owners at 100 million.