Even though the tax rate is a harsh 30%, Indian crypto investors have applauded the government's move to tax profits from digital asset transactions, underscoring optimism that the pending crypto bill will regulate the market rather than outright ban private currencies.
The Reserve Bank of India is in favour of outright prohibition of cryptocurrencies. It has made that clear in a series of messages stressing worries about virtual currencies' impact on macroeconomic and financial stability, as well as the difficulty of managing exchanges, monitoring, and regulating such assets.
Nonetheless, the government and a few members of the RBI's central board have urged a more nuanced approach to digital assets, taking into account technological advances.
Investors, prominent cryptocurrency exchanges operating in India, and industry experts all believe that more detailed consultations and modifications to the upcoming crypto legislation can propel India to the forefront of blockchain technology.
They've also expressed support for the government's ambitions to regulate the cryptocurrency market and formally assist in the development of underlying technologies.
"Crypto is financial innovation. Provided a reasonable regulatory framework, crypto legislation should boost investors' confidence. The ease in transactions can strengthen entrepreneurial confidence and catalyse trade and investment," said Ms Lekha Chakraborty, Professor at the National Institute of Public Finance and Policy, New Delhi.
"My hunch is the new crypto bill will focus on the regulatory framework rather than a blanket ban," she added.
In its current form, the proposed bill on Cryptocurrency and Regulation of Official Digital Currency advises that all private currencies be banned as a payment method in India.
However, the law has been delayed for more than a year, and investors are concerned about the lack of clarity surrounding the proposed crypto assets legislation's outcome.
Investors' concerns have been heightened by Finance Minister Nirmala Sitharaman's assertion that cryptos are not currencies and that only those issued by a central bank can be called currencies.
However, many investors feel that the government's decision to tax earnings from crypto and digital asset transactions signals that these assets are finally being embraced.
Some experts have noted that taxing the gains from digital asset trades does not legitimise the assets, and that clarification will have to wait until the bill is released.
"Taxing an asset doesn't make it legitimate. We need to wait for further announcements regarding the regulatory framework. And the statement by RBI Governor that 'cryptos do not have any underlying value, not even tulip,' reveals that crypto investors are doing this at their own risk," said Ms Chakroborty.
"Using tax policy to make crypto legal and venerable, or using tax to curb speculative assets like crypto as such assets have implications on financial stability - the policy intention behind the taxation narrative on crypto is unclear. These are not broad-based taxation even; it's confined to only high-risk, high-return-oriented investors," she added.
Despite the substantial 30 per cent tax rate on profits, the tremendous potential of the country's growing investor base and the astonishing rise of the digital assets market have boosted investor confidence.
"Crypto is a high-risk, high-return asset. High tax rates may not be a significant determinant for such investors. However, financial integrity is crucial in such transactions to pre-empt any bubbles, "added Ms. Chakraborty.