Calls for crypto regulation from governments around the world are growing as we approach 2022, but India’s cryptocurrency sector has been thriving in a rather legal gray area for some time now. The Union government has been keen to introduce cryptocurrency regulations, or a bill, but if recent reports continue, further delay is expected as the next budget session of Parliament which begins on January 31 does not should not offer immediate regulatory relief. to investors or other industry stakeholders.
The bill is already delayed as it was not discussed in the winter session of parliament which ended on December 22 last year, despite Finance Minister Nirmala Sitharaman earlier saying that a “well-consulted” bill would pass and be tabled in parliament once the cabinet approves it. But a recent report by Coindesk reveals that the parliament intends to allow itself more time to hold more discussions and reach consensus on the regulatory framework.
However, based on a mix of information that has come out over the past year and more, there is little we can expect from the government, if the subject of cryptocurrency regulation was to be addressed in the next budget session of parliament which ends in April. 8.
Taxation of cryptocurrency assets
Crypto industry insiders, investors, and traders expect the introduction of a proper tax policy framework for crypto revenue in the upcoming Union Budget 2022, though it won’t. probably represents only part of the eventual bill.
While the upcoming regulations may not prohibit Indians from trading cryptocurrencies, the government is likely to impose a tax on them – depending on the classification of holdings as fixed assets or commodities. If the government classifies cryptocurrency as an asset class, the collection of TDS (withholding tax) and TCS (withholding tax) on the sale and purchase of cryptocurrencies beyond of a specific threshold will be a likely possibility. If this happens, it will help the government to know and track investors.
The purchase and sale of cryptocurrency could be included as part of the reporting in the financial transaction record (SFT), as trading companies usually report the sale and purchase of shares and fund units mutual funds.
Tax authorities can then use the statement to collect information about specific high-value transactions a person made during the year. The person will also be required to include in the statement details of the specified financial transactions or any reportable account that was recorded, recorded or maintained during the year.
The government may also introduce a higher tax rate for gains made by an individual or entity through cryptocurrency trading. The tax rate here can be 30%, which is similar for winnings made from a lottery, game shows, puzzles, etc. If this happens, those who trade cryptocurrencies would have to pay taxes on the income from the sale of the digital assets.
The bill could also allow the Securities and Exchange Board of India (SEBI) to regulate cryptocurrencies as an investment vehicle in the capital market. In this case, financial experts say 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 portfolios of assets by treating them as an investment instrument.
Alternatively, the government and other stakeholders could choose to functionally categorize different cryptocurrency businesses – exchanges, wallet token issuers – and impose various tax responsibilities on them. This could mean that different stages of cryptocurrency operations will be taxed differently, from mining to trading to liquidation.
Waiting for RBI to pilot its CBDC
The Indian government is keen on regulation, but wants to have more discussion and build consensus, given the rapidly changing technology involved. At the World Economic Forum’s virtual summit on January 17, Prime Minister Narendra Modi called for simultaneous global action to regulate cryptocurrencies, stressing that efforts by one 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 by The Hindu, the Reserve Bank of India had decided to pilot a simpler CBDC model and use the lessons from the pilot to create a more sophisticated CBDC.
Now, a digital currency or CBDC is issued by the government or the central bank. Unlike cryptocurrencies, whose volatility is widely evident, a digital currency is more stable and backed by authorities – similar to a stablecoin in essence, but that’s not the only difference. Cryptocurrencies, including stablecoins, are decentralized, which may not be the case with state-issued digital currencies.
A study report by the Financial Action Task Force (FATF) – an intergovernmental organization created to combat money laundering and the financing of terrorism, states that virtual cryptocurrencies offer improved anonymity compared to traditional digital payment methods which can be used by terrorist organizations and criminals to launder their income or to finance illicit activities.
Additionally, non-CBDCs can interfere with central bank mandates when it comes to overseeing and effectively managing the economy. In an economy where the use and acceptance of non-CBDCs is widespread, the will of the central bank may have little relevance or weight. Additionally, cross-border cryptocurrency transactions can proceed with relative ease and little supervision, which will further hamper the supervisory authority and mandate of the central bank.
More importantly, since cryptocurrencies are decentralized, central banks will have no say when it comes to controlling the money supply in the economy, thereby depriving central banks of one of their most critical features. All the reasons why the RBI railed against the government’s legal protection of crypto.
The Indian government’s proposed crypto bill could lead to tougher measures for crypto, including jail terms for those who break the law, Reuters reported on Tuesday, citing an unidentified source and the bill’s summary. of law.
Proposal to impose prison sentences and fines for violations
According to a Bloomberg report from the beginning of December, the government foresees a “general ban on all activities by any person aimed at mining, generating, holding, selling, (or) trading” digital currencies as a “medium of exchange, store of value and unit of account”. according to the summary of the bill which still needs to be approved by the cabinet.
Although the tabled bill is unlikely to be seen in the next budget session, the report notes that those found guilty of offenses could be arrested without a warrant, which could be “unreleasable”, adds The report.
According to the report, Indian capital markets regulator SEBI is expected to be the regulator of crypto assets. Violators of the foreign exchange provisions could face jail time and fines of up to $2.65 million (about Rs 20 crore), according to previous reports. This is a blow to expectations that the Indian government may take a more relaxed stance on crypto, although parts of the bill may be revised before it is passed as legislation.
Cryptocurrency is an unregulated digital currency, which is not legal tender and is subject to market risk. The information provided in the article is not intended to be and does not constitute financial advice, business advice or any other advice or recommendation of any kind offered or endorsed by NDTV. NDTV shall not be liable for any loss resulting from any investment based on any perceived recommendation, forecast or any other information contained in the article.