Crypto trading in India may be taxed by 1 per cent and regulated by SEBI, new reports hint

Changing its stance on cryptocurrencies, the government of India may soon allow their use as an asset class in the country. This means people in India may be able to buy or sell cryptocurrencies as shares, gold or bonds. To ensure a safe trading space for such crypto investors, the government is also likely to roll out guidelines for crypto exchanges in the country, including a new taxation system.

The decision, as and when it comes, will be the first official regulation on cryptocurrencies in India. The move has been hinted at in a recent report by the Economic Times. It mentions that even though the government may allow the use of cryptocurrencies as assets, their use as a currency might not be permitted. This means people will not be able to use cryptocurrencies like Bitcoin or Ethereum for transactions in India.

Discussions on such regulation are still going on, as per the sources cited in the report, and there is a chance that the government will also introduce a tax on such a trade of cryptocurrencies in India. Another report by Business Standard mentions that the government is planning to introduce 1 per cent GST on crypto exchanges, to be collected at source. The exchanges will likely collect this from the investors using the platform.

The report further mentions that the cryptocurrency exchanges will possibly be classified into three categories - facilitators, brokerages and trading platforms. While brokerages help connect buyers and sellers, trading platforms, which are mostly electronic, provide software for placing trades and monitoring the markets.

Other than the classification and taxation, the government is also looking to bring regulations around the advertisements by such crypto platforms. The ET report mentions that the government may prohibit crypto exchanges and platforms from "active solicitation." In effect, this will likely mean a limit on the numerous ads that suggest people invest their money in cryptocurrencies, without warning them of the possible pitfalls.

The sources mentioned that the details of the bill are being finalised by the government, and that the bill could be presented before the cabinet for consideration in the next two to three weeks.

Interestingly, the sources also shared that the Securities and Exchange Board of India (SEBI) could be handed the onus to regulate the crypto industry in India. For those unaware, SEBI is the regulatory body for the securities and commodity market in India. It operates under the jurisdiction of the Ministry of Finance and regulates the stock market in the country.

The proposed bill on cryptocurrency regulations is likely to be presented in the upcoming winter session of Parliament.