As per a report by Blockchain Data firm Chainalysis, Indians had parked nearly $6.6 billion in cryptocurrencies until May this year, as compared to around $923 million until April 2020. India ranks 11th out of 154 nations in terms of cryptocurrency adoption. Despite the unclear state of cryptocurrency regulations in the country, the crypto space is witnessing positive signs from the government of India (GoI), investors, developers, and other stakeholders in the market.
Having been an IT hub for decades, India has wholeheartedly embraced the DLT-powered coins. Several domestic cryptocurrency exchanges are witness to the crypto revolution that has taken siege of the corporates and common alike but awaits the official declaration of crypto regulations to decide the further roadmap. Let’s rewind a little before we try and understand the crypto regulations in India.
A Summary of Recent Events
In April 2018, the RBI published a circular deterring all commercial and co-operative banks, small finance banks, payment banks, and NBFCs from dealing in cryptocurrencies themselves and also directed them to stop providing services to all entities which deal in cryptocurrencies.
This move came in the light of complete misinformation and lack of knowledge about Blockchain technology and its allied technologies such as cryptocurrencies. Many PILs were filed regarding the unfairness of the ban, and campaigns were run to educate the masses in cryptocurrencies. As a result, on 4 March 2020, the Hon’ble Supreme Court of India, in a well-conceived judgment, passed a decision quashing the earlier ban imposed by the RBI.
The Court predominantly assessed the issue from the standpoint of Article 19(1)(g) of the Indian Constitution, which stipulates the freedom to take part in any profession or carry on any occupation, trade, or business, and the doctrine of proportionality.
Understanding Cryptocurrency Regulations in India
Let’s have a Q&A session to better understand the state of cryptocurrency regulations in India:
#1 How does the RBI define cryptocurrencies?
The Reserve Bank of India considers cryptocurrency as a form of virtual currency generated through a series of written computer codes that rely on cryptography and encryption and is thus independent of any central issuing authority per se. The underlying technology is blockchain. Cryptocurrencies have emerged as a peer-to-peer class and a transaction system that enables authentication and encryption of transactions via private and public keys.
Notwithstanding the above definition, Indian crypto regulations cannot retrace the route taken by nations such as Japan, El Salvador, and the US. There is no full account convertibility in our country, i.e., exchanging the nation’s currency with foreign currency without any restrictions on the amount. The crypto community, including us at WazirX, is committing conscientious efforts to help cryptocurrencies attain the status of ‘a digital asset’.
#2 Is cryptocurrency and its trading legal in India?
We cannot call cryptocurrencies illegal because they have not yet been authorized for use by the central monetary authority of India, nor have they been denied this role so far. Bitcoin and other cryptocurrencies, therefore, fall beyond the scope of legal regulation in India.
#3 What are the Current Regulations concerning Cryptocurrency Taxation in India?
Some progress has been made on the taxation front even though India has not imposed crypto regulations. The GoI has asked organizations dealing in cryptocurrencies to adhere to transparency in all crypto undertakings and disclose all the capital gains earned from holding or trading in them. Amendments were introduced in the Companies Act in April to include cryptocurrencies within the ambit of the Act. These developments point to the probable status of cryptocurrencies as that of digital assets and any gains from trading in them to be treated as capital gains.
#4 Are the Speculations regarding a soon-to-be-tabled Cryptocurrency Bill true?
Of course, the much-speculated cryptocurrency bill titled ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 exists. It will hopefully go on floors in the upcoming winter session of the parliament. The bill’s main objective is to determine the definitions and classification of cryptocurrencies as per the kind of technology involved.
An inter-ministerial panel supposedly suggested that cryptocurrencies be treated as assets and not as currency. Also, speculations are rife about the government introducing CBDC and it soon becoming the norm – given the current government’s efforts to bring digitization.
#5 Can the GoI possibly ban Cryptocurrencies?
The current stance of the GoI is encouraging and forward-looking in terms of cryptocurrency adoption. Despite some initial nervousness from the crypto industry, we can expect neutrality and lack of clampdowns from the government as positive signals towards a holistic set of crypto regulations with more focus on the DeFi ecosystem, and
without the question of a ban.
The ministry officials have released several important statements regarding crypto regulations, clearly indicating that the government has given deep thought to the issue and is involved in this.
#6 What is the current stance of GoI?
On 7 September, in an event organized by the BACC (Blockchain and Crypto Assets Council) and IAMAI (Internet And Mobile Association of India), Jayant Sinha, the chairman of the Parliamentary Standing committee on Finance, reaffirmed the cryptocurrency bill will have a ‘unique and distinct’ stance on cryptocurrency and its regulation in India. Given the uniquely different set of challenges that India faces, the minister further elaborated on the direction the future crypto policy will take:
- The concerns of national security will dominate the objectives of the crypto policy. As per Mr Sinha, there is a high need for vigilance against the misuse of cryptocurrencies to fund terror and other illegal activities.
- The policy will aim for a balance between stability and growth concerning the larger scenario.
Former RBI Governor Rama Subramanium Gandhi said that once cryptocurrencies gain mass adoption, commodity exchanges’ rules could also apply to them.
#7 What does the future hold?
The government is all set to propose a bill for crypto regulations in the country that will take a calibrated approach towards crypto regulations.
“We have done a lot of work on it. We have taken stakeholders’ inputs. The Cabinet note is ready. We have to see when the Cabinet can take it up and consider it so that then we can move it”
The Lok Sabha Bulletin Part-II indicates that the Bill will establish a ‘facilitative framework’ to create an official digital currency (or CBDC) to be issued by the Reserve Bank of India. The digital currency, or Central Bank Digital Currency (CBDC), is not a novel concept as CBDC is a blockchain-based token depicting the digital form of a fiat currency. Already, many countries, including China, Sweden, the Bahamas, etc., are in the process of adopting CBDCs officially. WazirX CEO Nischal Shetty believes that “the industry will also be called for their inputs on the right way to figure out the regulations. It will be a longer process, but I think it will happen.”
Until the clouds clear over India’s actual state of crypto regulations, we can be assured that India will find itself amongst the nations reaping the multi-faceted benefits of cryptocurrency adoption. Unsurprisingly, cryptocurrency exchanges like WazirX have continued to witness massive growth over the last few months. Domestic exchanges are confident that more investors will join the cryptocurrency race in India after Bitcoin’s recent advance. While the government remains on the fence about popular cryptocurrencies, it is quite evident that the people of the country, especially millennials, have accepted cryptocurrency with open arms.
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