The Crypto sphere and cryptocurrencies, in general, have seen a surge of interest recently, as India expected to share and deliberate on a bill for regulation of cryptocurrencies in its ongoing session of the parliament (the details of which are still unknown). Amidst the constant price fluctuations in the cryptocurrency market and its volatility, we identified the most googled questions around this sphere and have tried to share our perspective on these.
The ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ is a proposed statute for regulation of cryptocurrencies in India, its underlying technology as well as establishing a framework for the establishment of an official digital currency of India. The description of the Bill as published in the legislative business list in the Lok Sabha reads as – “To create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”. The bill will be tabled during the upcoming Winter Session of Parliament, subject to the Cabinet’s approval.
The regulation of cryptocurrencies in India has witnessed a roller-coaster ride. As of now, there isn’t a ban on cryptocurrencies in India. In 2018, the RBI had announced a de-facto ban on cryptocurrencies in India by announcing that banks will not be able to transact in respect of cryptocurrencies. However, the Supreme Court in early March 2020 had nullified the RBI circular banning cryptocurrencies.
Since the contents of the ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ have not been released in the public domain yet, it is unclear whether there will be a ban on cryptocurrencies in India. The major confusion as regards the regulation or ban of cryptocurrencies in India is primarily owing to the interpretation of the phrase ‘prohibit all private cryptocurrencies in India’, and in turn, the interpretation of the term ‘private cryptocurrencies’ in India. Until there is clarity on the scope and interpretation of this term, the status quo will continue, and cryptocurrencies can continue to be traded in India.
While there remains ambiguity about the exact number of crypto investors in the country, it is estimated to be around 1.5-2 crores. If this number is true, it can be anticipated that a parallel financial economy is operating in India. While a ban on cryptocurrencies will heavily impact the individual crypto investors, a ban will also heavily impact private crypto platforms like WazirX, CoinDCX – some of them which have recently become ‘Unicorns’. If a blanket ban is to come India’s way, most of these investors will have to pull out their funds or transfer them to other, legally recognised legal tender. However, it is anticipated that even a ban would not be able to crypto-to-crypto transfer by users.
Currently, there is no statute for the regulation of cryptocurrency in India. In March 2018, the Central Board of Digital Tax (CBTD) submitted a draft to the Finance Ministry banning virtual currencies. On April 6, 2018, RBI issued a circular asking commercial and co-operative banks, payments banks, small finance banks, NBFCs, and payment system providers from dealing in virtual currencies. However, in March 2020, the Supreme Court lifted the ban mandated by the RBI which restricted dealing in cryptocurrency. Since then, there has been no official law, regulation or rules for the regulation of cryptocurrencies in India.
It is speculated that the government anticipates that transactions over the blockchain technology are easier to hack and pose a threat to the privacy and finances of people. The Government is of the opinion that it can lead to fraudulent transactions initiated by imposters. The Government’s rationale behind this is that blockchains often require no proof of identification and work largely on algorithms, the transactions over which are virtually impossible to track.
Presently, there is no explicit provision that informs about the taxation of cryptocurrencies in the Indian Income Tax Act. This is likely to be clarified when the discussion on the ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ takes place and the text of the bill is released in the public domain. It is speculated that cryptocurrencies will be taxed in accordance with tax slabs, with a cess of 4%. Further, long-term capital gains, i.e., held for more than a year, from cryptocurrencies might also attract a capital gains tax of 20%.
Currently, cryptocurrency is not a legal tender in India. The finance minister as well as other officials in the finance ministry has clarified that cryptocurrency will not be considered as legal tender in India. The only cryptocurrency which might be considered to be legal tender in India will be the one issued by the Reserve Bank of India (RBI) which is termed as the ‘Central Bank Digital Currency (CBDC)’.
There is a prohibition in China for cryptos and any crypto-asset facilitating institutions. These restrictions came in 2013 and have been made more stringent since 2016. On September 24, 2021, China announced a ban on all cryptocurrency transactions and crypto mining.
Ban was imposed in 2017. President Putin believes that crypto is synonymous with criminal activity, especially cross-border transactions. While it is permissible to invest in cryptocurrencies, it is illegal to use the same for the payment of goods and services.
Ban imposed this year, in April 2021. The government believed that using cryptocurrencies for goods and services caused ‘irreparable’ damages and significant risks were attached to such transactions which could not be undone.
Nepal, Qatar, Ecuador, Vietnam, Bolivia, Morocco have also banned any dealings in cryptocurrencies citing similar reasons.
There hasn’t been any hint from the legislature on the mechanism for implementation of the provisions of the Bill. Thus, any discourse right now on implementation would be pure conjecture and speculation since there have been no official comments and debates on the same. We anticipate that there will be more clarity in the Parliament Winter Session.
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