Role for cryptocurrency trading is very much confusing

The government has prepared a bill that will prohibit “all private cryptocurrencies” in India and provide a framework for creation of an official digital currency to be issued by the Reserve Bank of India. Titled “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.

Cryptocurrencies such as Bitcoin and Ethereum are getting competitive day by day in terms of returns .Since, the price of Bitcoin has grown over four times and Ethereum by over ten times in the past year alone

The bill will be considered in the ongoing Budget session of Parliament. The RBI is already exploring the possibility of issuing a digital version of the rupee that could eventually come as the country's central bank digital currency (CBDC) - based on the technological background of cryptocurrencies.

Although adequate details about the planned change are yet to be revealed, the government in the Lok Sabha bulletin on Friday mentioned that the bill was aimed “to create a facilitative framework for creation of the official digital currency” and “prohibit all private cryptocurrencies in India.

This is notably not the first time that the government has shown interest in banning cryptocurrencies in the country. In April 2018, the RBI had effectively banned cryptocurrency transactions via banks and e-wallets. That move was also backed by the Supreme Court initially, though it later quashed the circular issued by the central bank.

After two years, in March 2020, the Supreme court ruled against the RBI ban. It stated that there were no clear grounds for imposing such a ban. Sources said, the government is currently exploring the potential of a digital version of the rupee. The RBI noted in a booklet issued earlier this week that it was exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalise it.

The recent surge in the pricing of Bitcoin has attracted everyone including the Indian investors to start trade in cryptocurrency. Several people have also started mining cryptocurrencies in the country to gain some share from their increased adoption. However, the growth in cryptocurrency trading has also brought a surge in frauds as Bitcoin and other such currencies aren't regulated like a traditional currency.

They are not controlled and regulated by a central authority or the government. However, this does not mean that you are not required to pay tax if you invest in cryptos. This does not give any clarity and rather brings more confusion that there won’t be a complete ban on crypto.

Now a question comes on if the Government is going ban the cryptocurrency trading in the country, then how they are proposed to charge 18% GST on bitcoin transactions, estimated to be around Rs.40,000 crore annually. The CEIB told the Central Board of Indirect Taxes & Customs (CBIC) that government could potentially gain Rs 7,200 crore annually on bitcoin trading.

Now the guidelines from IT act of the country says, any income in India will be brought under the purview of income tax. Like every other investment, profits earned by investing in cryptocurrencies are also subject to capital gains tax under the Income Tax Act.