Budget 2018: Government to use blockchain for digital economy

Finance Minister Arun Jaitley has reiterated in his Budget speech the government does not consider cryptocurrencies legal tender, or coin, and will take all measures to “eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system”.

The statement is the first by the government that cryptocurrencies will not be a part of the payment system. The value of Bitcoin and other cryptocurrencies is rising as they gain ground as payment systems internationally. 

Ajeet Khurana, head of the Blockchain and Cryptocurrency Committee of India (BACC), which has most cryptocurrency exchanges as members, says, “Hearing the finance minister talk about cryptocurrency on Budget day is a clear indication of how important and widespread this technological innovation has become in India.”

However, industry experts and legal advisors point out the government has not said anything about legitimate cryptocurrency exchanges, which means they hope these will continue trading. There is also no clarity in the Budget on the tax treatment of cryptocurrency. “Most likely it will be treated as a capital asset for tax unless you are in the business of buying and selling, in which case it will be business income,” said an expert.

What was encouraging in Jaitley’s speech was that he clarified that “the distributed ledger system or the blockchain technology allows organisation of any chain of records or transactions without the need of intermediaries”. 

How this will be done is not spelt out, but the banking and insurance industries are already working on using blockchain. The bullion and commodity businesses are also studying the use of this technology. 

There are over 4 million users of cryptocurrencies in India.

Monish Panda, founder, Monish Panda and Associates said, “The finance minister’s statement indicates that the government will now either come out with a legislative mechanism or make suitable amendments in existing legislation to ensure that dealing and trading in cryptocurrencies is made illegal.”