Both sectors have witnessed record growth since the onset of the pandemic. According to a recent report from industry body Nasscom and cryptocurrency exchange WazirX, the crypto-tech industry grew 39% over five years to $74.2 million in FY21, and is expected to grow to $241 million by 2030. There are close to 230 startups in India’s crypto-tech space, the report said.
As for fintechs, digital transactions on the Unified Payments Interface (UPI) have increased to 4.5 billion transactions from about one billion at the start of the pandemic-induced lockdowns in April 2020.
Crypto companies want clarity on taxes
The cryptocurrency space, which has been in the spotlight over the past year, has been suffering due to the lack of regulations and clarity on taxation. There is widespread confusion among crypto firms on matters of indirect taxes, and the GST implications on the purchase and sale of cryptocurrencies. According to Nasscom, retail investors in India have invested $6.6 billion in crypto assets, which is estimated to grow to $15.5 billion by 2030.
Crypto exchange WazirX was recently fined almost Rs 50 crore by the GST Mumbai (East Commissionerate Zone) for alleged tax evasion. Many other crypto platforms including CoinSwitch Kuber, Buyucoin and Unocoin are under investigation by the Directorate General of GST Intelligence for allegedly evading taxes.
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Earlier this month,
ET reported that crypto platforms had failed to pay the correct amount of GST largely due to confusion over the taxes applicable to different business models adopted by these firms. ET also previously reported that the government has sought the opinion of senior tax advisors on whether income earned from trading cryptocurrencies could be treated as business income, as against capital gains.
In November 2021, Finance Minister Nirmala Sitharaman told the Rajya Sabha that no separate section or provision in Income Tax Act, 1961 presently deals specifically with the rate of tax, applicability and collection of tax on the income earned by crypto exchanges. However, the taxes earned by crypto exchanges are liable to be taxed under the head Business or Profession under Chapter-IV of the Income Tax Act, the FM added.
Sumit Gupta, cofounder and chief executive of CoinDCX, said, “We hope there will be adequate clarification on whether or not the income (from crypto assets) qualifies as business income. Similarly, clear guidelines and an explicit inclusion of crypto assets, and their corresponding treatment in the current GST and Income Tax guidelines, will be hugely beneficial.”
Sharan Nair, chief business officer at CoinSwitch, said regulations were essential for the sectors. “While leading crypto companies are taking proactive steps to self-regulate, we as an industry believe that a regulatory framework would standardise best practises across the industry,” said Nair, who is also a member of the Blockchain and Crypto Assets Council (BACC), a self-regulatory body set up by crypto firms.
Fintech firms rally for sops
Last year’s budget
earmarked Rs 1,500 crore to incentivise digital payments, but fintech firms want more. They are lobbying the government to bring back the merchant discount rate (MDR) – a fee that payment providers charge for each transaction – on the Unified Payments Interface (UPI).
Digital payment firms have previously said the removal of MDR from UPI transactions remains an impediment in taking digital payments to every corner of India.
Murali Nair, president of Banking, Zeta, said, “Given the surge in digital payments, the budget should consider offering tax incentives to consumers, merchants and ecosystem enablers. The digital payments ecosystem can be a force multiplier for economic growth. Spurring this industry is therefore a great way for accelerating overall economic growth and bringing about greater transparency in economic activity.”
Meanwhile the digital lending industry, which was severely hit at the start of the pandemic, wants the government to announce measures to ease liquidity flow to non-banking finance companies (NBFCs). Loan disbursals of the top three digital lending companies fell 90% from $104 million to $15 million from March to May 2020, according to management consultancy Redseer. In addition, the rise in loan defaults caused some fintechs to use dubious recovery practices and charge exorbitant rates to new customers.
ETtech“It is essential that the government announce measures to ease the liquidity flow to NBFCs and fintechs. Further, while ensuring the right degree of regulation, relaxation of norms and tax liberalisation to some extent will allow the fintech sector to boost its reach and operate effectively,” said Madhusudan Ekambaram, cofounder and CEO of KreditBee, a personal loan platform.
India’s fledgling neobanks, meanwhile, are just looking for recognition. Since they are not eligible for banking licences under RBI rules, they have to tie up with traditional banks to offer their services.
“We expect the budget to consider reforms and policies that provide increased space for homegrown innovation. A structured regulatory framework for the functioning of neobanks in India would also be a welcome move,” said Kapil Banwari, CEO and founder of Fyp, a neobanking platform focused on teenagers.
