Cryptocurrency bill 2021 : Tax on trading, investment on cards, no outright ban; all you need to know

The government plans to bring cryptocurrency investments of Indian citizens on national and global platforms under the tax scope rather than a total ban. The government plans to amend the current income tax laws to incorporate digital currencies in its scope in the next budget.

It wants to tax income and cryptocurrency investments in and out of India rather than a ban similar to China's, the reports said. The Center wants to consider Section 26A of the Income Tax Law and Annual Information Regulation (AIR), which carries data on all investments made by a taxpayer and is often referred to as a "tax book."

The Finance Ministry is likely to recommend adding the words 'cryptocurrency', 'crypto assets' or 'digital currency' in parts of the IT Act, an Economic Times report said, citing sources. This would require income tax assessors to report their cryptocurrency investments and earnings while filing tax returns, he added.

AIR is used to disclose any investment of Rs 2 lakh or more in fixed deposits, mutual funds, recurring deposits and jewelry. Currently, the tax department cannot legally approach banks to disclose information about their clients' cryptocurrency transactions because the asset is not defined or named in the Income Tax Law.

Girish Vanvari, founder of the tax advisory firm Transaction Square, told the publication that the tax laws should be updated to include the words cryptocurrency or digital assets and not only amend Section 26A, but also the foreign asset disclosure rules.

After the amendment, the tax department can easily approach banks to provide information on people's business activity regarding digital currencies.

Previous fears of a total ban on cryptocurrencies triggered a sell-off on Indian platforms after the government notified a bill to regulate such assets in the winter session of Parliament. However, reports now claim that the Center wants to create a distinction between currency and digital currencies by classifying the latter as "digital assets" and taking the business activities to the capital markets regulator Securities & Exchange Board of India (Sebi). This will be done to ensure that the cryptocurrency proposed by RBI can be distinguished from private digital tokens.

The government is scheduled to present the Bill of Cryptocurrencies and Regulation of the Official Digital Currency 2021 in the third week of the ongoing Winter Session.