There have been increasing calls for crypto regulation from governments around the world as we step into 2022, but India’s cryptocurrency sector has been thriving in a legal gray area for quite some time. The central government is eager to introduce a cryptocurrency regulation, or a bill, but if recent reports are anything to go by, further delays are expected as the upcoming budget session of Parliament that begins on January 31 offers immediate regulatory relief. is not likely. For investors or other industry stakeholders.
The bill has already been delayed as it was not discussed during the winter session of Parliament that concluded on December 22 last year, though Finance Minister Nirmala Sitharaman had earlier said that a “considered” bill would come through and it would After the approval of the cabinet, it will be presented in the Parliament. But a recent report coindesk shows that Parliament intends to buy itself more time to hold more discussions and build consensus on the regulatory framework.
However, based on a mix of more information over the past year or so, there are a few things we can expect from the government if the topic of cryptocurrency regulation comes up in the upcoming budget session of Parliament that ends on April 8.
Taxation of Cryptocurrency Holdings
Crypto industry insiders, investors and traders are anticipating the introduction of a proper tax policy framework for crypto earnings in the upcoming Union Budget 2022, although this is likely to form only a part of the final bill.
While the upcoming regulation may not bar Indians from dealing in cryptocurrencies, the government is likely to tax them – based on the classification of holdings as capital assets or commodities. Should the government classify cryptocurrency as an asset class, a possible possibility would be to levy TDS (tax deducted at source) and TCS (tax collected at source) on the sale and purchase of cryptocurrencies beyond a specific threshold. If this happens, it will help the government to know and track investors.
Cryptocurrency buying and selling can be included within the scope of reporting in the Financial Transaction Statement (SFT) just as trading companies typically report the sale and purchase of shares and mutual fund units.
Tax officials can then use the details to collect information on specific high-value transactions that a person did during the year. The person must also include in the statement the details of specified financial transactions or any reportable account that was registered, recorded or maintained during the year.
The government may also introduce a higher tax rate for profits made by an individual or entity from cryptocurrency trading. The tax rate here can be 30 percent, which is similar to profits from lotteries, game shows, puzzles, etc. If this happens, those trading in cryptocurrencies will have to pay taxes from the proceeds from the sale of digital assets. ,
The bill may also allow the Securities and Exchange Board of India (SEBI) to regulate cryptocurrencies as a capital market investment instrument. In this case, financial experts argue, there will be more stability in terms of institutional regulation and when it comes to better understanding digital assets. Investors will be able to diversify their asset portfolio by treating it as an investment instrument.
Alternatively, governments and other stakeholders can choose to functionally classify different cryptocurrency businesses – exchanges, wallet token issuers – and impose different tax responsibilities on them. This could mean that different stages of cryptocurrency operations, from mining to trading to liquidation, would be taxed differently.
Waiting for RBI to operationalize its CBDC
The Indian government is keen on regulation, but given the rapidly evolving technology, it wants to further discuss and build consensus. At the World Economic Forum’s virtual summit on January 17, Prime Minister Narendra Modi called for simultaneous global action to regulate cryptocurrencies, emphasizing that efforts by a single country may not be enough.
But another reason the government is trying to buy more time is the Reserve Bank of India’s plan to launch a central bank digital currency (CBDC). According to a report in The Hindu, the Reserve Bank of India had decided to conduct a simpler CBDC model and use lessons from the pilot in creating more sophisticated CBDCs.
Now, a digital currency or CBDC is issued by the government or central bank. Unlike cryptocurrency, whose volatility is widely evident, a digital currency is more stable and backed by authorities – in essence similar to a stablecoin, but this is not the only difference. Cryptocurrencies, including stablecoins, are decentralized, which may not be the case with state-issued digital currencies.
a study report The Financial Action Task Force (FATF) – an intergovernmental organization set up to combat money laundering and the financing of terrorism – says that virtual cryptocurrencies offer enhanced anonymity compared to mainstream digital payment methods whose Can be used by terrorist organizations and criminals for their laundering. To earn or finance illegal activities.
Additionally, non-CBDCs can interfere with the mandates of central banks in terms of supervision and efficient management of the economy. In an economy with widespread use and acceptance of non-CBDCs, the will of a central bank may have little relevance or importance. What’s more, cryptocurrency transactions across borders can take place with relative ease and little oversight which will further obstruct the oversight authority and mandate of central banks.
Most importantly, since cryptocurrencies are decentralized, central banks have little to do with effectively robbing central banks of one of their most important functionalities when it comes to controlling the money supply in the economy. will not have the right. The RBI has taken up arms against crypto because of any legal protection afforded by the government.
A crypto bill proposed by the Indian government could bring stricter measures for crypto, including jail time for those who violate the law, Reuters reported on Tuesday, citing an unnamed source and a summary of the draft bill.
Proposal to impose imprisonment and fine for violation
according to a bloomberg report Beginning in December, the government imposed general restrictions on all activities “mining, producing, holding, selling, (or) dealing by any person” in digital currencies as “a medium of exchange, store of value and a unit of account”. planning to install. ,” according to the summary of the bill which has not yet been cleared by the cabinet.
The introduced bill is unlikely to be seen in the upcoming budget session, the report said, but added that violators could face arrest without warrant, which is “non-bailable”. Maybe.
According to the report, India’s capital markets regulator, SEBI, is expected to be the regulator for crypto assets. According to previous reports, those who violate the exchange provisions could face prison sentences and fines of up to $2.65 million (about Rs 20 crore). This comes as a blow to hopes that the Indian government may take a more relaxed stance on crypto, although parts of the bill may be ready for amendment before being passed as law.
Cryptocurrency is an unregulated digital currency, is not legal tender and is subject to market risks. The information in this article is not intended to be financial advice, business advice or any kind of advice or recommendation given or endorsed by NDTV. NDTV shall not be liable for any loss arising out of any investment based on any alleged recommendation, forecast or any other information contained in the article.