The Indian government officially brought in the cryptocurrency gains under the taxation regime on Tuesday. Though the government was expected to table a bill to regulate digital assets, the Finance Minister surprisingly mentioned the new crypto taxation rule in her budget speech that will come into effect from the next financial year commencing in April.
Tax Is Too High
A majority of the local crypto industry is optimistic after this as it will give cryptocurrencies legitimacy. But, many are pointing out the nuances of the taxation rule.
The government has kept the crypto tax rate higher than any other asset class in the country: securities are taxed at a long-term capital gains tax rate of 10 percent and a short-term capital gains tax rate of 15 percent.
In fact, the Indian government is looking at crypto gains similar to gambling and lottery earnings, where it levies a flat 30 percent tax rate.
“The taxation of profit from crypto assets at 30% may not receive equal appreciation from all the stakeholders. The higher taxes may discourage investors from choosing crypto as an investment avenue and delay the mass adoption of crypto assets in India,” said Jay Hao, CEO of OKX.com.
Trading Volume Will Decline
Moreover, the new crypto taxation framework explicitly rules out the exemption of cryptocurrency gains under any deductible sections. This will legally force crypto traders to file income tax returns even if they make a cent in crypto profits: the usual minimum income tax slab to file a return is INR 250,000 (around $3,345).
Another rule that is being criticized by many is that the crypto traders will be not allowed to offset their losses from the market. It means crypto traders cannot offset losses from crypto trading with their other business profits.
With all these rules, even many crypto exchange executives are expecting much lower trading volumes on their platforms. Moreover, the 1 percent tax deductible at source (TDS) will further discourage traders. The TDS, however, will put a tracker to all crypto transactions being executed on the Indian exchanges, leaving no room for a tax escape.
“The 30% tax without the option to set-off of losses against other tokens or deductions can lead to a drop in turnover,” wrote Nithin Kamath, the funder and CEO of the country’s leading discount stock broker Zerodha. “
Market makers
Market Makers
Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a very high risk and chooses to route the flow to another liquidity provider.Such brokers are typically providing very quick execution, however an inherent conflict of interest is possible due to the fact that the brokers is making the bulk of its profits from client losses.Role of Market Makers in FX IndustryIn the FX space, a market maker quotes two-way prices for tradable currency pairs. In doing so these market makers quite literally make the market. In particular, a forex market maker performs three specific tasks.This includes setting bid and offer prices within a given currency pair, committing to accepting deals at these prices within certain constraints, and taking the resulting exposure on to their own book.In terms of accounting for this exposure onto their book, market makers can opt to hedge the exposure with another bank, pending favorable rates. How quickly or slowly, or how much risk they lay off will be at their own discretion.Market makers can make profit through several techniques. If these entities identify enough flow at both sides of their quote, they can simply collect the bid offer spread.Consequently, market makers can net off their exposure. Presently, large banks see huge flows of foreign currency transactions from their operations around the world in a multi trillion-dollar-a-day industry.
Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a very high risk and chooses to route the flow to another liquidity provider.Such brokers are typically providing very quick execution, however an inherent conflict of interest is possible due to the fact that the brokers is making the bulk of its profits from client losses.Role of Market Makers in FX IndustryIn the FX space, a market maker quotes two-way prices for tradable currency pairs. In doing so these market makers quite literally make the market. In particular, a forex market maker performs three specific tasks.This includes setting bid and offer prices within a given currency pair, committing to accepting deals at these prices within certain constraints, and taking the resulting exposure on to their own book.In terms of accounting for this exposure onto their book, market makers can opt to hedge the exposure with another bank, pending favorable rates. How quickly or slowly, or how much risk they lay off will be at their own discretion.Market makers can make profit through several techniques. If these entities identify enough flow at both sides of their quote, they can simply collect the bid offer spread.Consequently, market makers can net off their exposure. Presently, large banks see huge flows of foreign currency transactions from their operations around the world in a multi trillion-dollar-a-day industry.
Read this Term & active traders are usually 80%+ of turnover in most trading businesses. If costs can’t be shown as an expense, losses can compound quickly.”
Industry Is Optimistic
Despite all harsh rules, the industry is now optimistic about the future of cryptocurrencies in India. No, the tax laws do not legally define cryptocurrencies, but they definitely legitimize the digital currencies, when the industry was expecting a crypto ban by the government.
The ultimate fate of cryptocurrencies in India will be decided by the upcoming draft bill that is expected to be introduced in the Parliament around May. But, it will be very hard for the government now to move from heavily taxing cryptocurrencies to banning them.
Shivam Thakral, CEO of BuyUcoin, said: “The crypto investors in India must be extremely satisfied with this announcement as they can now execute crypto trading without any fear. The positive move by the regulators will legalize the billions of dollars invested by Indians in crypto assets and create a new tax revenue stream for the government.”
But, Kamath again pointed out that such laws around cryptocurrencies will change the core value with which
Bitcoin
Bitcoin
Bitcoin is the world’s first digital currency that was created in 2009 by a mysterious entity named Satoshi Nakamoto. As a digital currency or cryptocurrency, Bitcoin operates without a central bank or single administrator. Instead, Bitcoin can be sent via a Peer-to-Peer (P2P) networking, devoid of intermediaries.Bitcoins are not issued or backed by any governments or banks, and Bitcoin is not considered to be legal tender, although they do have status as an acknowledged transfer of value in some jurisdictions. Rather than composing a physical currency, Bitcoins are pieces of code that can be sent and received across a kind of distributed ledger network called a blockchain. Transactions on the Bitcoin network are confirmed by a network of computers (or nodes) that solve a series of complex equations. This process is called mining. In exchange for mining, the computers receive rewards in the form of new Bitcoins. Mining grows increasingly difficult over time, and the rewards get smaller and smaller. There is a total of 21 million Bitcoins. As of May 2020, there are 18.3 million Bitcoins in circulation. This number changes approximately every 10 minutes when new blocks are mined. Presently, each new block adds 12.5 bitcoins into circulation.Since its inception, Bitcoin has remained the most popular and largest cryptocurrency in terms of market cap in the world. Bitcoin’s popularity has contributed significantly to the release of thousands of other cryptocurrencies, called “altcoins.” While the crypto market was originally hegemonic, today’s landscape features countless altcoins.Bitcoin ControversyBitcoin has been extremely controversial since its original launch. Given its mercurial nature, Bitcoin has been criticized for its use in illegal transactions and money laundering.As its impossible to trace, these attributes make Bitcoin the ideal vehicle for illicit behavior. Moreover, critics point to its high electricity consumption for mining, rampant price volatility, and thefts from exchanges. Bitcoin has been seen as a speculative bubble given its lack of oversight. The crypto has weathered multiple collapses and survived over a decade so far. Unlike its launch back in 2009, Bitcoin today is viewed far differently and is much more accepted by merchants and other entities.
Bitcoin is the world’s first digital currency that was created in 2009 by a mysterious entity named Satoshi Nakamoto. As a digital currency or cryptocurrency, Bitcoin operates without a central bank or single administrator. Instead, Bitcoin can be sent via a Peer-to-Peer (P2P) networking, devoid of intermediaries.Bitcoins are not issued or backed by any governments or banks, and Bitcoin is not considered to be legal tender, although they do have status as an acknowledged transfer of value in some jurisdictions. Rather than composing a physical currency, Bitcoins are pieces of code that can be sent and received across a kind of distributed ledger network called a blockchain. Transactions on the Bitcoin network are confirmed by a network of computers (or nodes) that solve a series of complex equations. This process is called mining. In exchange for mining, the computers receive rewards in the form of new Bitcoins. Mining grows increasingly difficult over time, and the rewards get smaller and smaller. There is a total of 21 million Bitcoins. As of May 2020, there are 18.3 million Bitcoins in circulation. This number changes approximately every 10 minutes when new blocks are mined. Presently, each new block adds 12.5 bitcoins into circulation.Since its inception, Bitcoin has remained the most popular and largest cryptocurrency in terms of market cap in the world. Bitcoin’s popularity has contributed significantly to the release of thousands of other cryptocurrencies, called “altcoins.” While the crypto market was originally hegemonic, today’s landscape features countless altcoins.Bitcoin ControversyBitcoin has been extremely controversial since its original launch. Given its mercurial nature, Bitcoin has been criticized for its use in illegal transactions and money laundering.As its impossible to trace, these attributes make Bitcoin the ideal vehicle for illicit behavior. Moreover, critics point to its high electricity consumption for mining, rampant price volatility, and thefts from exchanges. Bitcoin has been seen as a speculative bubble given its lack of oversight. The crypto has weathered multiple collapses and survived over a decade so far. Unlike its launch back in 2009, Bitcoin today is viewed far differently and is much more accepted by merchants and other entities.
Read this Term was first introduced.
“Clearly, crypto, at best, will be treated as an asset and not a currency. If it’s not a currency, it loses its primary use case. Whenever the crypto bill comes through, my guess is that they will want to ring-fence Indian crypto to restrict capital flows outside India,” he added.
“So, crypto will potentially be treated like stocks. They will probably have to be held in some demat equivalent overseen by a regulated entity. If this happens, crypto will be centralized and lose its next big advantage.”
It is also not clear which agency in the country will regulate the booming cryptocurrency industry, and the exchanges remain unregulated. But they will have to ramp up their compliance efforts now.
Also, without any legal status, the regulated Indian trading platforms cannot offer crypto products. Meanwhile, the Reserve Bank of India is likely to oppose the legalization of cryptocurrencies maintaining its long-standing stance towards the industry.
The Indian government officially brought in the cryptocurrency gains under the taxation regime on Tuesday. Though the government was expected to table a bill to regulate digital assets, the Finance Minister surprisingly mentioned the new crypto taxation rule in her budget speech that will come into effect from the next financial year commencing in April.
Tax Is Too High
A majority of the local crypto industry is optimistic after this as it will give cryptocurrencies legitimacy. But, many are pointing out the nuances of the taxation rule.
The government has kept the crypto tax rate higher than any other asset class in the country: securities are taxed at a long-term capital gains tax rate of 10 percent and a short-term capital gains tax rate of 15 percent.
In fact, the Indian government is looking at crypto gains similar to gambling and lottery earnings, where it levies a flat 30 percent tax rate.
“The taxation of profit from crypto assets at 30% may not receive equal appreciation from all the stakeholders. The higher taxes may discourage investors from choosing crypto as an investment avenue and delay the mass adoption of crypto assets in India,” said Jay Hao, CEO of OKX.com.
Trading Volume Will Decline
Moreover, the new crypto taxation framework explicitly rules out the exemption of cryptocurrency gains under any deductible sections. This will legally force crypto traders to file income tax returns even if they make a cent in crypto profits: the usual minimum income tax slab to file a return is INR 250,000 (around $3,345).
Another rule that is being criticized by many is that the crypto traders will be not allowed to offset their losses from the market. It means crypto traders cannot offset losses from crypto trading with their other business profits.
With all these rules, even many crypto exchange executives are expecting much lower trading volumes on their platforms. Moreover, the 1 percent tax deductible at source (TDS) will further discourage traders. The TDS, however, will put a tracker to all crypto transactions being executed on the Indian exchanges, leaving no room for a tax escape.
“The 30% tax without the option to set-off of losses against other tokens or deductions can lead to a drop in turnover,” wrote Nithin Kamath, the funder and CEO of the country’s leading discount stock broker Zerodha. “
Market makers
Market Makers
Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a very high risk and chooses to route the flow to another liquidity provider.Such brokers are typically providing very quick execution, however an inherent conflict of interest is possible due to the fact that the brokers is making the bulk of its profits from client losses.Role of Market Makers in FX IndustryIn the FX space, a market maker quotes two-way prices for tradable currency pairs. In doing so these market makers quite literally make the market. In particular, a forex market maker performs three specific tasks.This includes setting bid and offer prices within a given currency pair, committing to accepting deals at these prices within certain constraints, and taking the resulting exposure on to their own book.In terms of accounting for this exposure onto their book, market makers can opt to hedge the exposure with another bank, pending favorable rates. How quickly or slowly, or how much risk they lay off will be at their own discretion.Market makers can make profit through several techniques. If these entities identify enough flow at both sides of their quote, they can simply collect the bid offer spread.Consequently, market makers can net off their exposure. Presently, large banks see huge flows of foreign currency transactions from their operations around the world in a multi trillion-dollar-a-day industry.
Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a very high risk and chooses to route the flow to another liquidity provider.Such brokers are typically providing very quick execution, however an inherent conflict of interest is possible due to the fact that the brokers is making the bulk of its profits from client losses.Role of Market Makers in FX IndustryIn the FX space, a market maker quotes two-way prices for tradable currency pairs. In doing so these market makers quite literally make the market. In particular, a forex market maker performs three specific tasks.This includes setting bid and offer prices within a given currency pair, committing to accepting deals at these prices within certain constraints, and taking the resulting exposure on to their own book.In terms of accounting for this exposure onto their book, market makers can opt to hedge the exposure with another bank, pending favorable rates. How quickly or slowly, or how much risk they lay off will be at their own discretion.Market makers can make profit through several techniques. If these entities identify enough flow at both sides of their quote, they can simply collect the bid offer spread.Consequently, market makers can net off their exposure. Presently, large banks see huge flows of foreign currency transactions from their operations around the world in a multi trillion-dollar-a-day industry.
Read this Term & active traders are usually 80%+ of turnover in most trading businesses. If costs can’t be shown as an expense, losses can compound quickly.”
Industry Is Optimistic
Despite all harsh rules, the industry is now optimistic about the future of cryptocurrencies in India. No, the tax laws do not legally define cryptocurrencies, but they definitely legitimize the digital currencies, when the industry was expecting a crypto ban by the government.
The ultimate fate of cryptocurrencies in India will be decided by the upcoming draft bill that is expected to be introduced in the Parliament around May. But, it will be very hard for the government now to move from heavily taxing cryptocurrencies to banning them.
Shivam Thakral, CEO of BuyUcoin, said: “The crypto investors in India must be extremely satisfied with this announcement as they can now execute crypto trading without any fear. The positive move by the regulators will legalize the billions of dollars invested by Indians in crypto assets and create a new tax revenue stream for the government.”
But, Kamath again pointed out that such laws around cryptocurrencies will change the core value with which
Bitcoin
Bitcoin
Bitcoin is the world’s first digital currency that was created in 2009 by a mysterious entity named Satoshi Nakamoto. As a digital currency or cryptocurrency, Bitcoin operates without a central bank or single administrator. Instead, Bitcoin can be sent via a Peer-to-Peer (P2P) networking, devoid of intermediaries.Bitcoins are not issued or backed by any governments or banks, and Bitcoin is not considered to be legal tender, although they do have status as an acknowledged transfer of value in some jurisdictions. Rather than composing a physical currency, Bitcoins are pieces of code that can be sent and received across a kind of distributed ledger network called a blockchain. Transactions on the Bitcoin network are confirmed by a network of computers (or nodes) that solve a series of complex equations. This process is called mining. In exchange for mining, the computers receive rewards in the form of new Bitcoins. Mining grows increasingly difficult over time, and the rewards get smaller and smaller. There is a total of 21 million Bitcoins. As of May 2020, there are 18.3 million Bitcoins in circulation. This number changes approximately every 10 minutes when new blocks are mined. Presently, each new block adds 12.5 bitcoins into circulation.Since its inception, Bitcoin has remained the most popular and largest cryptocurrency in terms of market cap in the world. Bitcoin’s popularity has contributed significantly to the release of thousands of other cryptocurrencies, called “altcoins.” While the crypto market was originally hegemonic, today’s landscape features countless altcoins.Bitcoin ControversyBitcoin has been extremely controversial since its original launch. Given its mercurial nature, Bitcoin has been criticized for its use in illegal transactions and money laundering.As its impossible to trace, these attributes make Bitcoin the ideal vehicle for illicit behavior. Moreover, critics point to its high electricity consumption for mining, rampant price volatility, and thefts from exchanges. Bitcoin has been seen as a speculative bubble given its lack of oversight. The crypto has weathered multiple collapses and survived over a decade so far. Unlike its launch back in 2009, Bitcoin today is viewed far differently and is much more accepted by merchants and other entities.
Bitcoin is the world’s first digital currency that was created in 2009 by a mysterious entity named Satoshi Nakamoto. As a digital currency or cryptocurrency, Bitcoin operates without a central bank or single administrator. Instead, Bitcoin can be sent via a Peer-to-Peer (P2P) networking, devoid of intermediaries.Bitcoins are not issued or backed by any governments or banks, and Bitcoin is not considered to be legal tender, although they do have status as an acknowledged transfer of value in some jurisdictions. Rather than composing a physical currency, Bitcoins are pieces of code that can be sent and received across a kind of distributed ledger network called a blockchain. Transactions on the Bitcoin network are confirmed by a network of computers (or nodes) that solve a series of complex equations. This process is called mining. In exchange for mining, the computers receive rewards in the form of new Bitcoins. Mining grows increasingly difficult over time, and the rewards get smaller and smaller. There is a total of 21 million Bitcoins. As of May 2020, there are 18.3 million Bitcoins in circulation. This number changes approximately every 10 minutes when new blocks are mined. Presently, each new block adds 12.5 bitcoins into circulation.Since its inception, Bitcoin has remained the most popular and largest cryptocurrency in terms of market cap in the world. Bitcoin’s popularity has contributed significantly to the release of thousands of other cryptocurrencies, called “altcoins.” While the crypto market was originally hegemonic, today’s landscape features countless altcoins.Bitcoin ControversyBitcoin has been extremely controversial since its original launch. Given its mercurial nature, Bitcoin has been criticized for its use in illegal transactions and money laundering.As its impossible to trace, these attributes make Bitcoin the ideal vehicle for illicit behavior. Moreover, critics point to its high electricity consumption for mining, rampant price volatility, and thefts from exchanges. Bitcoin has been seen as a speculative bubble given its lack of oversight. The crypto has weathered multiple collapses and survived over a decade so far. Unlike its launch back in 2009, Bitcoin today is viewed far differently and is much more accepted by merchants and other entities.
Read this Term was first introduced.
“Clearly, crypto, at best, will be treated as an asset and not a currency. If it’s not a currency, it loses its primary use case. Whenever the crypto bill comes through, my guess is that they will want to ring-fence Indian crypto to restrict capital flows outside India,” he added.
“So, crypto will potentially be treated like stocks. They will probably have to be held in some demat equivalent overseen by a regulated entity. If this happens, crypto will be centralized and lose its next big advantage.”
It is also not clear which agency in the country will regulate the booming cryptocurrency industry, and the exchanges remain unregulated. But they will have to ramp up their compliance efforts now.
Also, without any legal status, the regulated Indian trading platforms cannot offer crypto products. Meanwhile, the Reserve Bank of India is likely to oppose the legalization of cryptocurrencies maintaining its long-standing stance towards the industry.
