Future of cryptocurrency in India: How the 2023 Union Budget could make or break the crypto landscape

The Indian Union Budget for 2023 will decide what the landscape of the Indian crypto industry will look like.

Avinash Shekhar, Former CFO/CEO of Zebpay joined us to discuss the regulatory landscape of crypto.

The Government levied a 1% TDS  on the transfer of crypto assets, which negatively affects the crypto industry, said Avinash.

Will this decision be reconsidered by the government?

Can you give us a brief overview of the history of crypto in India?

Cryptocurrency exchanges were first established in India back in 2012-13.

Since then there have been some concerns, and hesitation from the regulatory point of view. Reserve Bank of India (RBI) cautioned users multiple times about investing in crypto at that time.

In April 2018 the RBI issued a notification to regulated entities such as banks, and NBFCs, to not support virtual currencies.

That halted crypto’s journey in India in some way.

But I believe it was to understand how crypto works, whether it has intrinsic values or not, and find out if it was another Ponzi scheme. Some scams also happened at that time.

The case went on for a while. The Supreme Court eventually lifted the ban on digital currencies in March 2020. Subsequently, there was a crypto boom that went on from 2020 – 2022, bitcoin price reached 67,000 – 68,000 USD.

Then in the Union Budget 2022, the Government of India announced that it will provide specific regulations on crypto.

The new rules were as follows:

• A 30% tax would be levied on any income generated from the transfer of crypto assets.
• Crypto losses cannot be set off. This meant that you cannot adjust the losses from the crypto transactions against the taxable income.
• Carrying forward losses was also not allowed. This prevented taxpayers from rolling over tax losses to future years to offset profits.
• 1% TDS (Tax Deducted at Source) on the sale and/or transfer of crypto assets.  It became effective on 1st July 2022.

The Government Officials said that they wanted to bring transparency. Their objective is certainly met. but the 1% TDS is going to have a negative impact on the Indian crypto ecosystem on the whole.

Indian crypto innovators have already started moving out of India and to countries that have less restrictive crypto regulations.

Do you believe that Bitcoin is a currency?  

There can be some debate over whether Bitcoin is a currency or not.

A few countries such as El Salvador and the Central African Republic (CAR) have accepted it as legal tender. As of now, Bitcoin is not a currency in India.

You have to look at digital currency as a decentralized way to transfer value. However, currency or money has more characteristics than this single aspect. In my opinion, decentralization can be true Financial Democratization. The Government has to accept it.

It is not known whether we will reach there or not. One can only hope.

What is the best way to invest in crypto in your opinion? 

Please note that this is my personal opinion and in no way investment advice.

There are different types of investors or users of cryptocurrency. If you usually invest in stocks then consider crypto as a risky asset class. Depending on your risk profile crypto can be 5% or 10% of your investment portfolio.

And for anyone who is just entering this space, you should spend your time and energy on understanding how crypto works and how it affects the finance industry.

Only then you’ll get more assurance to extend the amount of crypto on your portfolio. Bitcoin and Ethereum, two of the most used cryptos have proven their worth. There are use cases, and the adoption level is massive.

Newer crypto projects are coming up almost every other day. If you are considering investing in them, make sure to look at them as if you are investing in a startup.

The outcomes of investing can be disappointing, as 9 out of 10 startups fail. Keep that in mind and adjust your portfolio accordingly.

What are your thoughts on the Indian Union Budget for 2023? Do you see any changes in the crypto regulation happening in India?

Indian Union Budget for 2023 is going to be presented on February 1, 2023. It will decide what the 2023 landscape of the Indian crypto industry will look like.

A lot of changes need to be made in crypto regulations, in my opinion.

The Reserve Bank of India (RBI) has already issued a concept note on Central Bank Digital Currency (CBDC) on October 7, 2022.

This is a positive step taken by the government.

Let’s hope that the Government reconsiders the decision of imposing 1% TDS on the sale and/or transfers of digital assets.

Indians are one of the biggest users of crypto exchanges in the world.

Crypto innovators should be comfortable building projects/products in India. More people will start investing again, which will not only help contribute to the economy but also create jobs and put India under the limelight.

The Indian Government has to realize that crypto is a revolutionary technology that has its risks, but the benefits outweigh them. We can minimize those risks and make sure that there is a positive ecosystem and regulatory environment where only legitimate players thrive.

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