Crypto Regulation In India
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was dropped in the final days of the session but will likely resurface in the future. The Advertising Standards Council of India announced new guidance126 related to the advertising of cryptos and NFTs in February 2022. The new rules, which come into effect on April 1, prohibit the use of the words “currency, securities, custodian, and depositories” in advertisements, as consumers often associate the terms with regulated products
Source: Thomson Reuters
There has been much discussion about the legality of cryptocurrency in India. The various actions taken by the Government of India lays down the clear intent of the authorities to provide a recognized legal status to cryptocurrencies.
It began with the RBI coming out with a circular, restraining banks, NBFCs, and payment system providers from dealing with virtual currencies and providing services to virtual currency exchanges. This resulted in crypto exchange platforms filing a writ petition in the Supreme Court; the ban was ultimately struck down in the case of Internet and Mobile Association of India v. Reserve Bank of India, where the Supreme Court declared the RBI circular unconstitutional.
Source: Mondaq
Taxing cryptocurrencies does not give them legal status in the country, finance minister Nirmala Sitharaman clarified in the Parliament. It’s the country’s sovereign right to tax cryptocurrency transactions. However, any official stance on regulation will only come once the ongoing consultations are completed, the finance minister said. As the central government has announced straightaway a 30 percent tax on any kind of transfer in cryptos, investors are taking it as the first positive step towards crypto regulation in the country. It is now clear from the Budget announcement that there is not going to be any ban on cryptos and this may encourage more investors into the industry than deter them,” Micky Irons said.
Source: News18
In India, cryptocurrencies are currently unregulated. However, historically the Reserve Bank of India (the RBI) and the Government of India have banned dealing in cryptocurrency. The RBI had, through its notification dated 6 April 2018, entitled ‘Prohibition on dealing in Virtual Currencies (VCs)’ (the ‘Crypto Ban Notification’), banned all banks and financial institutions (the ‘Regulated Entities’) from providing services to transactions related to cryptocurrency. Additionally, the RBI had also issued repeated warnings with respect to investing in cryptocurrencies. According to the RBI, cryptocurrencies are ‘stateless digital currencies, in which encryption techniques are used for trading and as these currencies operate independent of a central bank, they enjoy immunity from state intervention. Consequently, they could be widely used for carrying out illegal transactions.
Source: iBanet
Virtual Digital Assets are subsets of all digital assets transacted on a blockchain, such as non-fungible tokens (NFTs), cryptos, and other virtual assets. The Finance Bill 2022 defined VDAs in the newly introduced Clause (47A) under Section 2 of the IT Act, 1961.
According to the Clause, VDAs are information, code, number, or token not being Indian or foreign currency, generated by cryptographic means or otherwise. It is a digital representation of value that is exchanged with or without consideration.
VDAs involves a promise or representation of having an inherent value and function as a store of value or a unit of account. It includes its use in any financial transaction or investment. However, VDAs are not limited to investment schemes and can be transferred, stored, or traded electronically.
VDAs include cryptos and other digital assets because of the phrase ‘generated through cryptographic means or otherwise used in the Finance Bill.
Digital assets which are not physical or tangible are classified as Virtual Digital Assets. The finance minister has announced that the RBI will issue digital currency in the next fiscal. A currency is a currency only when the Reserve Bank of India issues it, even if it is a crypto.
Virtual digital assets may soon get a broader definition as the government brings more virtual assets under its ambit. In a nutshell, the government may fine-tune the definition of VDAs to cover any new product that emerges under the tax laws.
Source: India Today
The finance minister’s use of the phrase “virtual digital asset” in her speech earlier this month points to why many in the industry, and the media that cover it, are not saying crypto is legal.
The budget proposal defines virtual digital assets as “any information or code or number or token (not being Indian currency or foreign currency) generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged.”
Source: Coindesk
Regulating crypto assets and digital currency, addressing remaining regulatory concerns in banking, and integrating with the global economy are among the few mid-term structural issues for India
Regulating crypto assets along with digital currency, addressing the remaining regulatory concerns in the banking sector, and integrating with the global economy are among the few mid-term structural issues for India, a top official from the International Monetary Fund has said.
Overall, the IMF is looking at India in a very positive fashion, Tobias Adrian, Financial Counselor and Director of the Monetary and Capital Markets Department told PTI on Tuesday.
“I think there are many opportunities and growth (in India is coming back). There’s a recovery. There’s a lot of excitement around new growth opportunities, new developments, he said on the sidelines of the annual spring meeting of the IMF and the World Bank.
Source: Business Standard
Cryptocurrency assets will be taxed: From 1st April 2022, some changes in the income tax rules announced by Finance Minister Nirmala Sitharaman while presenting Union Budget 2022 will get implemented. One of them is a tax on cryptocurrency and other digital assets. Nirmala Sitharaman in the Union Budget 2022 announced that “any income from transfer of any virtual digital asset shall be taxed at the rate of 30 percent.”
“The new regime of flat 30% taxation on income from crypto assets from April 1, 2022, will ebb the sentiments for the new age asset class. Though, we hope that the crypto investors will back their investment thesis and stay in with the investment for longer periods,” said Kunal Jagdale, Founder, BitsAir Exchange.
Source: Livemint
From being called speculative products to ‘virtual digital assets’ (VDAs), cryptocurrencies have come a long way. From April 1, India introduced a tax on all VDAs. The law states that any income earned from the transfer of digital assets would be taxed at 30 percent with no deductions or exemptions. This would apply to the gifting of digital assets as well.
Source: Indian Express
India is implementing a 30 percent tax rate on income from virtual digital assets, such as cryptocurrency and NFT. For this purpose, section 115BBH has been inserted into the Income-tax Act, 1961. While the taxation will be effective from April 1, 2022, cryptocurrency transactions for the previous fiscal year (FY 2021-22 period) will also be taxed. Other tax implications on virtual digital assets (VDA) include one percent TDS on transfers, no basic exemptions, no set-off on losses, no indexation benefits irrespective of the holding period, and taxation of gifts.
Source: India Briefing
Cryptocurrency in India has gone a long way in a short time. Digital currency exchanges were virtually nonexistent in India five years ago. Now, approximately 15–20 million investors are holding more than $5.3 billion in crypto, according to a Reuters report, citing industry estimates, representing the second-largest number of crypto traders worldwide. Virtual assets have garnered particular traction among India’s millennial population.
Source: Forbes
At the outset, currently, there is no specific law/regulation/licensing requirement that is applicable to the crypto exchanges/businesses which are operating in India. Depending on the form of entity, the crypto exchanges would be required to obtain customary approvals from the applicable authorities for doing business in India. For instance, if a crypto exchange is operating in the form of a company then it shall have to adhere to the necessary provisions of the Companies Act, 2013, and its underlying rules.
Of course, such crypto exchange inter-alia would also have to obtain tax-related approvals and registrations from relevant tax authorities. The exchange would have to obtain a Permanent Account Number (PAN), a Tax Deduction and Collection Account Number (TAN), and a Goods and Services Identification Account Number (GSTIN), and would have to carry out necessary compliances applicable under the relevant tax laws (for example – filing of income tax returns, monthly deposition of withholding tax, filing of quarterly withholding tax returns, issuing withholding tax certificates, filing of monthly and annual goods and services tax returns, etc.)
Source: Tax Guru
India’s very own official digital currency is likely to debut by early 2023, which will mirror any of the currently available private company-operated electronic wallets, but with a change that it will be a sovereign-backed facility, a top government source said.
Finance Minister Nirmala Sitharaman in her budget speech last week talked about launching a central bank-backed ‘digital rupee’ soon.
Source: Business Standard
The Government of India announced the Union Budget for 2022–23 earlier today, with Finance Minister Nirmala Sitharaman bringing much-needed clarity for millions of crypto investors in India. The government has imposed a 30% fixed tax rate on all income generated through crypto trading while also aiming to introduce the Digital
The Digital Rupee, which is supposed to be India’s first Central Bank Digital Currency (CBDC) project, will be a digital form of the rupee – one that will be completely regulated and monitored by the central government. But if you are unsure what CBDCs mean, CoinSwitch Kuber brings the much-needed clarity on it.
Such currencies usually have the full faith and backing of the issuing authority. Hence, the Reserve Bank of India will remain the guarantor of the Digital Rupee, just as it is for regular notes and coins.
Source: Economic Times
Hackers’ interest in cryptocurrencies and those who follow the industry seem to be catching up with influencers and exchanges in India. Last night, Indian crypto exchanges found themselves in the middle of what seems like a sweeping hack of crypto and tech influencers worldwide. Amongst those affected were YouTubers with millions of followers, like Arun Maini who goes by MrWhoseTheBoss, and exchanges like WazirX, CoinDCX, and more.
Source: Business Insider
Several crypto influencers and Indian crypto exchanges found their YouTube accounts had been compromised by cybercriminals on Monday morning. They realized the accounts had been hijacked when the hackers posted a video of a cryptocurrency scam on their channels. The exchanges are now awaiting a response from YouTube.
Source: Economic Times
FATF, in its 2021 guidance note on Virtual Assets (like crypto), raised a red flag—“This Guidance outlines the need for countries and VASPs, and other entities involved in VA activities, to understand the money laundering and terrorist financing (ML/TF) risks associated with VA activities and to take appropriate mitigating measures to address those risks.” The crypto industry has not yet been able to address these concerns with any concrete measures.
The regulators fear the misuse of cryptocurrencies using their anonymity for weakening their anti-money laundering efforts.
This has been amplified further by the recent statement of RBI Deputy Governor—“The Financial Stability Institute of the Bank for International Settlements identifies difficulties in regulating cryptos—such as the international nature of crypto transactions, absence of technological solutions to ensuring FATF’s ‘Travel Rule’, the problem of ‘unhosted wallets’, the fact that P2P transactions do not involve any entity subject to AML-CFT regulations, etc. Let us suppose India decides to regulate cryptocurrencies.
Source: Orf Online
India can utilize a regulatory sandbox under Sebi and encourage industry-friendly policies. By providing the right regulatory framework, this huge pool of assets can be funneled into the mainstream economy. They can act as a funnel for anti-money laundering and KYC norms, as well as serve as a major gateway to regulate cross-border transactions. With the inherent advantage of high security, transparency, and instantaneous settlement of transactions, such a digital asset can prove to be a blessing for India.
Source: Financial Express
In August 2019, the Reserve Bank of India (RBI) released its final guidelines for a regulatory sandbox for fintech firms. Technology innovations are disrupting the traditional financial sector, and the RBI’s regulatory sandbox exercise is an attempt to be more agile and absorb some of this disruption. ‘Sandboxes’ give regulators a chance to work with fintech innovators, mitigate potential risks and develop evidence-based policy, while fintech companies can test new products, services, or business models with customers in a ‘live’ environment, subject to certain safeguards and oversight. This brief examines the current state of regulatory sandboxes in India and evaluates the successes of and challenges to this relatively new regulatory framework and tool. It also looks at gaps the industry perceives as key and outlines future expectations. Finally, it comments on why regulators need to build other formal mechanisms for encouraging innovation.
Source: Orf Online
