The approval of spot bitcoin exchange-traded funds (ETFs) by the Securities Exchange Commission (SEC) in the United States has paved the way for Indians to explore investment opportunities in crypto assets.
According to industry experts, this avenue not only provides investment options but also offers potential taxation benefits for Indian investors.
Indian investors will now have the option to transfer funds internationally utilizing the Liberalized Remittance Scheme (LRS).
It’s important to highlight that participation in foreign stock and ETF markets by Indian investors is regulated by the Reserve Bank of India’s Liberalised Remittance Scheme (LRS). Under this scheme, investors from India can allocate up to $250,000 for investments, including in US ETFs.
Nevertheless, according to the LRS guidelines, remittances explicitly for trading purposes in the US stock market or any other foreign market are strictly prohibited.
“For Indian investors, the Bitcoin ETF will provide an opportunity to include crypto in their portfolio via the LRS route. Like any other asset class, Bitcoin ETFs also come with their own sets of advantages and disadvantages. An Indian investor taking exposure on Bitcoin ETF will get easy exposure through regulated entities without worrying about the storage of the cryptocurrency,” said Viram Shah, CEO, Vested Finance.
Shah further highlighted that 1% TDS on transactions will not be applicable since there is no actual crypto being purchased and capital gains tax will also be lower.
On other hand, the 20% TCS introduced in 2023 will be applicable on deposits above INR 7 Lakhs via LRS. Although, unlike TDS, it can be used to offset other tax liabilities but may lead to liquidity getting stuck. In addition, management fees for the ETF is an additional cost.
On January 10, the regulatory body overseeing the US capital markets granted approval for 11 spot Bitcoin ETFs, including offerings from prominent financial institutions such as BlackRock, Vanguard, Franklin Templeton, Valkyrie, Fidelity, and Invesco.
Sidharth Sogani, chief executive of cryptocurrency research firm Crebaco Global, said, “Floodgates are now open (for) institutional investments (to) flow in…We anticipate about $5 billion coming in (through ETFs) in the next 45 days. ETFs will bring more stability to the price of Bitcoin, since the liquidity risks will be reduced with time.”
The landscape of India’s cryptocurrency market underwent a substantial impact due to the taxation regulations implemented in the Union Budget 2022. These measures introduced a 30% income tax on profits and an additional 1% tax deducted at source (TDS) on all cryptocurrency trades.