Several cryptocurrency exchanges have reached out to the government in what is being seen
as the last hope to lobby against a complete ban on crypto assets in the country.
Cryptocurrencies like Bitcoin are based on blockchain technology that allows peer-to-peer (P2P) transfer from one wallet to another and one person to another without a banking account or using any other official channel, experts said.
“In case of a second blanket ban on organised crypto ecosystem in India, we can expect crypto trading to happen through parallel channels like P2P, WhatsApp or social media groups, foreign exchange platforms, hard cash, and other non-traceable, anonymous sources, which has been a major concern for proponents of a trusted crypto ecosystem in India including IAMAI (Internet and Mobile Association of India), Niti Aayog and Nasscom,” said Shivam Thakral, chief executive of BuyUcoin, a cryptocurrency exchange and wallet.
Many investors have already started using this route as the spectre of a ban seems more likely with every passing day, tax and cryptocurrency experts and lawyers aware of the development told ET.
Experts also said the government does not have the infrastructure to execute a crypto ban, leading to proliferation of black economy.
“If the government bans crypto, it will be impossible to enforce because it does not have the infrastructure to execute the ban,” said Sidharth Sogani, CEO of Crebaco Global, a cryptocurrency research firm. “This will give rise to a parallel shadow economy and this is a fallout the government would not want.”
Insiders put most crypto investors in the country in two buckets – those who want to sell their cryptocurrencies and avoid paying income tax, and those who want to continue holding on to it.
Take the case of a Noida-based real estate developer ET spoke with. He had bought bitcoins worth Rs 30 lakh in April last year. He doesn’t wish to sell his crypto assets and is exploring whether he can move these into a currently dormant investment company that he holds in Malta.
Many investors are looking to transfer cryptocurrencies outside India to relatives as “gifts”.
And then there are those who wish to sell their cryptocurrencies before the Indian government bans it so that they can make a fast buck.
“If a ban is imposed, Crypto assets will be traded on the grey market; as is demonstrably the case with unintended consequences of bans, the market won’t disappear, it will merely move to darker corners and risks including those of money laundering / Terrorist financingwill emerge because the regulators will lose sight of the activity. It’s ideal to set up the legal and policy infrastructure to regulate these assets, rather than enacting laws to ban them,” said Mandar Kagade, founder principal, Black Dot Public Policy Advisors.
Monark Modi, founder-CEO of cryptocurrency exchange Bitex Technologies, said a ban may only make matters worse, triggering a spurt in illegal trading. “Even during the earlier crypto ban in the country, P2P was being used to trade and while they’re being carried out without bank’s knowledge, it cannot be said to be a good way of buying or selling,” he said.
If the government regulations force investors to sell their crypto assets they could face tax of up to 42% on their returns.
Tax experts point out that avoiding the taxman
may not be easy if the crypto assets were brought through Indian exchanges.
“If any investor has bought crypto currency through Indian exchanges, then there would be an audit and banking trail for that which can be followed to trace the entire transaction,” said Amit Maheshwari, tax partner at consulting firm AKM Global. “Also, even if investors dispose/transfer their crypto assets in any form in or outside India like transferring to relatives/friends or transferring to overseas exchanges then that could also trigger tax liability,” he said.
And then there’s the money laundering angle.
“Money laundering can be done using both crypto and fiat currency,” said Vikram Rangala, chief marketing officer at crypto exchange platform ZebPay. “Cash transfers will probably happen if people don’t have other options. It would be better to give people secure, regulated pathways for all kinds of reasons, including collecting taxes,” he said.