Since digital footprints can be trailed, the identity of the owner of a crypto wallet address can be found and is not completely private.
With the recent developments taking place in India, the Government is going to keep a strict eye on the crypto industry of India.
Finance Minister Nirmala Sitharaman, while announcing the Budget for the Financial Year 2022-2023, revealed that the Government is going to levy TDS (Tax Deductible at Source) at 1% on each transaction. It will help the Government in collecting information about crypto.
However, this stands antithetical to the ethos of crypto that believes in keeping the identity of user private and pseudonymous.
Crypto was created on the notion that humans are corruptible and to circumvent that a system is needed which minimizes the chances of corruption. Then emerged decentralization which puts the power in the hands of many to keep a check on the centralization of power and its misuse.
Since every blockchain transaction is visible to everyone, users could be put in harm’s way if their wallet addresses can be tracked to their identity. The ones who have the resources to carry out such a task may misuse their power.
The recent case of a Pune Police officer misusing his power and kidnapping a crypto trader to extort money is a typical example.
Moreover, the Centralized Exchanges (CEX) are private companies that can get hacked. The hacker then can leak user details or even sell them.
In traditional finance, only the ones who are part of the system know about a transaction. This provides greater privacy.
Further, cash transactions cannot be tracked anywhere. That’s why cash is used for money laundering and terror financing.
But Decentralized Finance (DeFi) does not provide privacy; it only provides pseudonymity. Government’s intention is not wrong when it comes to taxing crypto. It needs money for nation-building projects. But the issue of privacy needs to be solved in order to protect users.
Cryptocurrency is not considered a legal tender in India and may not get that status. As per Government’s perspective, crypto is an asset class. But the new taxation regime treats it similar to gambling and betting. That’s why such an unfavourable tax regime has been imposed.
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