A Financial Stability Board (FSB) report that is expected in October will help the government take a call on whether to ban cryptocurrency transactions through wallets and will provide a legal framework for dealing with crypto trade in India, a senior government official told Outlook Business.
The report will have guidelines on how the legal contours of India’s cryptocurrency trade will take shape, said the official, who was speaking on the condition of anonymity.
The FSB is also studying international precedents around cryptocurrency legislations and its report is expected to guide India’s legal policy to deal with concerns surrounding money laundering and terror funding around crypto trade that surfaced recently in India.
“We are awaiting the (FSB) report which will be important from the crypto legislation perspective. We are also hoping it addresses how to deal with wallet transfers (of crypto).
We will take a view on whether to ban wallet transfers depending on what the report suggests. The legislation part is still being worked on. When we had taxed it (in Budget 2022), we had made it clear that legislation is still a work in progress. This report would help address the legislation aspect to a considerable extent,” the official said.
The FSB is working to formulate legislation on cross-border transactions in cryptocurrencies. It was set up in 2009 under the aegis of G20 by bringing together the national authorities, standard setting bodies and international financial institutions for addressing vulnerabilities and developing and implementing strong regulatory, supervisory and other policies in the interest of financial stability.
India is an active member of the FSB and has three seats in its Plenary, held by secretary economic affairs, deputy governor-Reserve Bank of India and chairman of Securities and Exchange Board of India. The FSDC Secretariat in the Department of Economic Affairs coordinates with various financial sector regulators and other relevant agencies to represent India’s views with the FSB.
Status In India
Cryptocurrencies are unregulated in India but in Budget 2022, the government announced a flat 30 per cent tax on gains from cryptocurrency transactions as well as a tax deducted source (TDS) of 1 per cent.
“RBI is of the view that it should be banned. It has made its stand clear. The government believes that till legislation is formed around it, it should be taxed.
Taxation should not be given up, which is why the Budget announced the taxes. The FSB report would help in addressing this issue, whether or not crypto should be banned. And that needs international regulations. Banning it just in India would keep the grounds open for transactions through wallets which are cross-border in nature,” the official said.
What about the imposition of goods and services tax (GST) that has also been in discussion? “Once a view is taken on the legal aspect of crypto, the next step would naturally be imposing GST. For imposing GST, it has to be first classified as to what kind of an asset is it—is it a commodity or is it a service. We are expecting that the report would help address these questions. Those deliberations are largely ongoing and depend on whether we are looking to legalise it not,” the official said.
RBI has been vehemently opposing cryptocurrencies. Governor Shaktikanta Das has on more than one occasion maintained that cryptocurrencies are a danger to the country and that anything whose value is derived solely from conjecture is speculative in nature. The central bank identified a number of risks related to the cryptocurrency asset markets, including connections between such markets and the regulated banking system. “Identification and quantification of risks posed by crypto-assets face data gap challenges,” the RBI has said in the past.
In a written reply to Lok Sabha, finance minister Nirmala Sitharaman had said that RBI is in favour of banning cryptocurrencies and that it has conveyed to the ministry that it cannot be considered as a legal tender since they are not issued by the RBI. “In view of the concerns expressed by the RBI on the destabilising effect of cryptocurrencies on the monetary and fiscal stability of a country, the RBI has recommended for framing of legislation on this sector. The RBI is of the view that cryptocurrencies should be prohibited,” Sitharaman’s reply to the Lok Sabha says.