Earlier this week, BloombergQuint, a financial publication run by Bloomberg and the Noida-based Quintillion Media, reported that the government of India is seeking to impose a new taxation policy on cryptocurrency trading.

Indian financial authorities will classify cryptocurrencies like bitcoin and Ethereum as intangible assets and will tax 18 percent on cryptocurrency trading, which will be imposed and overseen by the Central Board of Indirect Taxes and Customs.

Local financial authorities are planning to effectively impose the newly drafted taxation policy on cryptocurrency trading as early as July 1, 2017, to facilitate the growing demand for cryptocurrency and acknowledge growing concerns from both businesses and investors in the local cryptocurrency sector in regards to lack of regulatory clarity and certainty.

It still remains unclear whether India will demand taxes from traders for their gains or impose tax regardless of the outcome of the investment. In other major regions like the US and France, traders are only required to pay capital gains tax on the profits they generate from cryptocurrency investments but are not demanded to pay for buying, storing, and selling cryptocurrencies.

Significance of the Policy

For many years, since 2015, Indian authorities have offered differing views on the cryptocurrency sector. Several ministers have described bitcoin as a scam while others have acknowledged the potential of cryptocurrency and blockchain technology.

The imposition of the taxation policy on cryptocurrency trading and the categorization of cryptocurrencies like bitcoin and Ethereum as intangible assets will essentially lead to the legalization of cryptocurrencies within India.

Just last month, controversy emerged within the Indian cryptocurrency market as the Reserve Bank of India, the central bank of the country, released a statement requesting businesses regulated by the RBI to stop dealing with cryptocurrency businesses.

“It has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately,” the RBI said.

In response, the country’s biggest cryptocurrency exchanges such as Unocoin clarified that they have not received any notice of service termination by local banks.

“Please note the notice issued doesn’t talk about the legality of cryptocurrencies as such and hence the legality status of Bitcoin or other cryptocurrencies In India remain unchanged. This decision of RBI’s was more in line with it’s earlier statements on the risk associated with the cryptos,” said the Unocoin team.

Tax Policy Could Mean Legalization

Indian cryptocurrency exchanges such as Unocoin, Coinsecure, and Zebpay have self-regulated their platforms since 2014 and have continued to sustain strict Know Your Customer (KYC) and Anti-Money Laundering (AML) policies despite the lack of regulations in India.

If the government of India officially legalizes cryptocurrency as intangible assets, it will allow the Indian cryptocurrency market, which analysts have described as a market that has potential to compete against major markets like Japan and South Korea, to evolve at a rapid rate and match the exponential growth rate of other leading regions.