The government is seeking to present a new draught bill that will offer up classifying virtual currencies based on their use cases.
The government is trying to introduce a new draft bill which will propose to compartmentalise virtual currencies on the basis of their use cases. From now onwards cryptocurrencies will be treated as an asset/commodity for all purpose such as taxation as per the use case, payments, investment or utility.
This is for the first time crypto will be identified as per the technology they use but the government is trying to end-use of the asset for regulatory purposes. The bill is expected to highlight the tax treatment for such assets so it will be mentioned clearly in the books of accounts. “The government in its draft bill is working towards defining cryptocurrency and its treatment in various use cases, so that it cam be treated correctly in the books of accounts plus it should be taxed in the right manner. It is not looking to allow payments and settlements through virtual currencies,” said a well-known person.
Even if it is for tax or any other purpose there is no clarity as to whether crypto assets are currency, commodity, service or closer to equity. This is known as a lacuna in the law as unless an asset is defined ambiguity of how it should be taxed or how it should be regulated is a huge question remaining to be answered. “Crypto assets can either be categorised on the basis of technology they use or they can be defined on their end use. So, before talking about how the regulations should work, government has to spell out what it means by cryptocurrencies,” said a person who knew of the department. Based on recent reports crypto exchanges had policies recommendation for regulating crypto with defining crypto as digital assets and bringing forward a new system to register home-grown exchanges.
“There are more than 5,000 different cryptocurrencies, each with its own different legal characteristics. Therefore, rather than the cryptocurrency technology alone, regulation should be tailored according to the end-use or activity of a particular token,” said Jaideep Reddy, leader technology law at law firm Nishith Desai Associates. Nonetheless, if crypto assets as termed as commodities the returns could be taxed as business income in the hands of the investors on the returns at normal income tax rates. RBI flagged off issues surrounding crypto in the past.