While the government is planning to amend the Income Tax (I-T) Act in Budget 2022-23 to bring cryptocurrency investments and trading under official scrutiny, there still seems to be a lack of clarity on who would be regulating the sector.
“Certain sections of the I-T Act could be amended to incorporate the term cryptocurrency. That would enable the government to track those who are investing or trading in it. Investments and incomes from cryptocurrency could be tracked this way,” a senior government official says.
However, there is no clarity on how it would be classified. “How it (trading and investing in cryptocurrencies) would be taxed is all dependent on what kind of asset class cryptocurrencies would be classified as,” he says.
It could be regulated by the RBI if it is treated as a financial asset that gives steady returns for a stipulated period. In case it is defined as a tradable asset, the long-term capital gains tax might be applicable, making the Securities Exchange Board of India (SEBI) the regulator.
“These fine-tunings still need to be wrapped up. The definition will decide how income and investments from it would be taxed,” the official said.
The government has made it clear in the ongoing Winter Session of the Parliament that it had no plans to boost the cryptocurrency sector in India. Minister of State for Finance Pankaj Chaudhary said in the Parliament that the government does not collect any data related to
cryptocurrency as it is unregulated in India.
Recently, the government also issued a notification regarding the introduction of a new cryptocurrency Bill—Cryptocurrency and Regulation of official Digital Currency Bill, 2021—in the Winter Session. The notification stated that the Bill 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 attempts to develop a facilitative framework to launch India’s official digital currency that would be issued by the Reserve Bank of India (RBI). The RBI is expected to soon launch a pilot project for the official digital currency.
The government received a proposal from the RBI in October 2021 to amend the Reserve Bank of India Act, 1934. It aims to enhance the scope of the definition of “banknote” to include currency in digital form. The RBI is examining the use cases and working out a phased implementation strategy for the introduction of central bank digital currencies (CBDCs).
On November 13, Prime Minister Narendra Modi chaired a meeting to take stock of the regulatory prospects for cryptocurrencies. The meeting was attended by top officials of the RBI, Finance Ministry and Home Ministry and concluded that the ‘attempts to mislead the youth through overpromising and non-transparent advertising’ had to end. It was also noted that unregulated digital currency markets should not be allowed to become avenues for terror financing and money laundering.
At a recent meeting between the stakeholders and the Standing Committee on Finance, industry representatives decided on the need for regulation of the digital currency market but could not successfully respond to certain questions raised by parliamentarians.