In the Indian context, the government’s push towards a digital economy offers opportunity for bitcoin supporters. Bitcoins matches this vision due to its cashless, seamless and easy nature of transactions. .

Tax Opportunities in virtual currency transactions 1) Indirect taxes on every virtual currency (VC) transaction

Most countries have made buying and selling of these currencies value-added tax (VAT) free as they find no value added as cryptocurrencies move from person to person. There is the possibility of charging service tax on companies dealing in such currencies. Virtual currency transactions, however, are subject to transaction fees. 2) Direct tax possibilities for the persons involved in VC transactions

Levy of corporate income tax on businesses deriving their regular business income from virtual currency transactions Imposition of short or long term capital gains tax in case of non-regular income flowing from VC transactions Source: Interview with Saurabh Agarwal, Co-founder, ZebPay



As on May 9, 2017 one bitcoin equals Rs 106131.4 (INR). Ever since its inception sometime in 2009, this currency thrives unaided by central banks and in spite of its links with terror funds, drug money, ransom trades and other dark transactions. And current developments promise even better performance.“Over the next two years we would see exponential increase in bitcoin prices as it gains rapid acceptance with a larger audience. In time, prices would stabilise and bitcoins would become the universal currency for all ecommerce transactions,” predicts an optimistic Raj Chowdhury, Head of Innovation at ICICI Bank.Chowdhury’s optimism stems from the fact that regulators across the globe are mulling seamless options for the payments business. Bitcoin’s advantages then stack up unevenly in the eyes of these regulators. Reason: the bitcoin’s decentralised nature, the anonymity it offers even to players such as hackers makes its benefits less attractive.At the same time, Chinese exchanges suspended withdrawals till such time that they updated their compliance with AML demands of the regulators. European Union too adopted stricter norms to ensure terror financing does not get a fillip via bitcoins.And when one scrutinises the situation a little closely, even platforms such as Amazon, Expedia and Microsoft that happily accept bitcoins do not really take exposure to these virtual currencies. They operate in these nascent markets via intermediaries like Coinbase or BitPay.However, as countries like Japan, the Philippines, Russia and other countries recognise bitcoins as legal tender in their territories, the bitcoin market has limited supply of 21 million bitcoins at present and has a market capital of $28,792,440,041 which is expected to increase exponentially in the future. News reports point out that in a country like Japan, over 4,500 stores accept bitcoin payments while over 700,000 outlets actively use other modes of digital payments.In the Indian context, the government’s push towards a digital economy offers opportunity for bitcoin supporters. Bitcoins matches this vision due to its cashless, seamless and easy nature of transactions.The Indian currency regulator, the Reserve Bank of India (RBI), however, has formed a committee to explore the potential of blockchain technology that underlies the bitcoin phenomenon.According to Chowdhury, regulatory frameworks evolve over time and naturally lag new technological advancements. “We are starting to see collaboration among Banks, regulators and technology companies to make a regulatory framework available in time. Regulators at RBI are quite technology savvy and will take the right decisions in creating an environment for Indian companies to flourish in this space,” he reckons.Saurabh Agrawal, Co-founder at ZebPay, one of the major bitcoin exchanges in India is clear when he says, “Mass adoption in fintech space is possible only with government’s support.”And when it comes to virtual currencies like the bitcoin, regulators are apprehensive because these currencies can have the potential to destroy the existing banking industry set-up.Parag Deodhar, Chief Information Security Officer - Asia, Japan and Business Services, AXA puts it in simple terms, “It is a decentralised currency and the regulators would like to control some part of it.” Bitcoins disturb functioning of central banks or the government because of the nature of this currency – peer-to-peer anonymous transaction without a fee. Regulators will not let this happen without wresting more control.However, the move towards a global currency is not as far-fetched as it seems. “There is a trade off between strict regulations and technology development,” says Agrawal. And currently, regulators of different countries are searching for the middle ground where it is possible to take advantage of the benefits of this new technology without disrupting existing market structures.ETCFO puts together the likely scenarios under which bitcoin and other similar currencies will become mainstream.Though a minimum hygiene requirement, KYC compliance directly solves the anonymity issue that worries regulators. As the bitcoin network tracks the transactions and stores it in a public ledger, issues such as prevention of money laundering gets solved practically.As ICICI Bank’s Chowdhury explains, “Several major bitcoin wallets see working with banks as an approach to quickly go mainstream. By ensuring that both the sender and receiver are KYC/AML verified, they maintain a high standard of trust. By integrating BIP75, a payment protocol for secure money transfers, they create a method of communication between the sender and receiver before a payment is made.” Chowdhury was the head of the ICICI Bank team which integrated the blockchain technology in its network.Bitcoin and other such currencies are currently able to fulfil payments without any transaction fee. It is an advantage that regulators can easily remove. In March 2014, the U.S. Internal Revenue Services announced that bitcoin mining activity would be taxed as income on the basis of market value as of the date of the activity. This was mainly done in reaction to few companies which took advantage of bitcoin’s growing popularity and the lack of public public knowledge about it to launch ponzi schemes disguised as bitcoin mining.There are many ways in cryptocurrency transactions or service providers can be taxed while operating in a jurisdiction. (See Box: Tax opportunities)India is the second largest market in the world in mobile penetration and rapidly growing even now. A networked economy is a prerequisite for the adoption of any virtual currency. “This is a market place ready to transact in bitcoins. Yet, compared to other countries there are very few people in India using bitcoins,” says Zebpay’s Agarwal.It is just a matter of the putting the horse before the cart. Sometimes that happens fairly quickly when an industry is getting disrupted by technological change. At other times, legacy systems put up a fight for longer than was necessary.