Legal system not ready for all our crypto fantasies

Today I was having a chat with my auditor about the crypto situation in India. There were a few topics that we covered during the conversation. I called him to ask about tax filing and a few more queries but then the conversation slid toward crypto and he started asking me how my crypto journey is going and we started discussing it in detail about it. The final outcome of the conversation was that our Legal system is still not fully ready for all our crypto fantasies.

The government in India is trying to impose lots of regulations on Cryptocurrenices. Initially, it was the same government that said that cryptocurrencies cannot be considered legal tender and imposed a ban on the same. Now the ban has been lifted but still, it is not legal tender. If we are using crypto for trading and trying to get some gain out of it, the government says that we have to pay a 30 percent flat tax on the same. Most of the people who are trying to trade cryptocurrencies invest their FIAT into crypto and multiply it with the help of trading. These are the people who pay their direct 30 percent taxes. There are so many people doing this already.

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Crypto exchanges ask for KYC

Most of the cryptocurrency exchanges that are supported in India are asking for KYC verification and they track all the transactions that are happening on deposit and withdrawal. This I think is important in my opinion because this would reduce crime to a greater extent. Whenever the government needs some data from these exchanges, they can expose the data to the government because they are already collecting the data.

Though cryptocurrencies are pushing us towards decentralization, it is ideal to follow all government norms and regulations to keep our funds protected from any malpractices. There are people in the world that use cryptocurrencies for bad purposes too. Having a regulation will help in keeping a check on that and having control over those bad practices. KYC is a good move in my opinion but governments should think about encouraging people to build more with the help of this wonderful technology.

Income in the form of cryptocurrencies

This is still a gray area. From what I heard from some of my friends, they did mention that we are still not sure how to show the income from cryptocurrencies and pay tax for the same. The government had said only about the capital gain or profit from cryptocurrency trading to be imposed a 30% tax but it did not talk about the regular income people get in the form of cryptocurrencies. Many people are showing that as an income from other sources and are paying tax based on their tax slab. Maybe if there are some cases where this is exclusively brought into the debate, there would be new regulations imposed on this one.

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I believe there are so many people who don't do any initial deposit but they would withdraw money from the crypto exchanges because they earned that money by doing some work. There is no clear regulation for the same. The auditors are also not clear on how this should be handled. Some people did not want to risks and they pay a 30% flat tax on that as well and some people keep paying only based on the tax slab and wait for the government to bring some norms.

P2P transactions

These are the gray areas where the governments and the regulatory board do not have proper control. For example, if we have our wallet fully filled with lots of fiats and we make use of that cash to purchase fruits from roadside vendors, there is no way that government will know what we are doing and it is also not easy to track or keep a record of those transactions. With cryptocurrencies, this is also a possibility where if people transact between one wallet to another wallet for some needs, it is hard to track them. The better way to regulate is when the amount is converted or withdrawn as FIAT and impose a tax on that.

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