Cryptocurrency regulation in India: Centre likely to table bill in Winter Session

The government is all set to table a comprehensive bill on cryptocurrency which may be presented in the coming Winter Session of Parliament.

The Standing Committee on Finance is scheduled to hold talks on crypto assets in the next meeting on November 15, India Today reported.

The Reserve Bank of India (RBI) has already conveyed communicated its reservation on cryptocurrencies. The central bank on Friday made its position clear on the digital assets, stating it has grave concerns regarding them, reaffirming its consistent position on the use of virtual currencies. RBI Governor Shaktikanta Das had earlier stated, "There is no change in the RBI's position. We have major concerns around cryptocurrencies, which we have conveyed to the government. And, about investors, it is for each investor to do his/her due diligence and take a very careful and prudent call."

Also Read: PM Modi chairs meeting on cryptocurrencies; govt to engage with experts, stakeholders

The government is indisposed to taking a position on cryptocurrencies like China, which has banned the digital assets. The idea is to adopt a more moderate regulatory path, which could mean that India may not ban cryptocurrencies completely.

The concern the government needs to clear up is whether such digital assets get treated as currencies or investment assets. Top sources are of the view that there isn't much chance of cryptocurrencies getting the status of currency in the country.

However, the government realises that the mania for cryptocurrencies offers an economic opportunity if regulated well as the crypto players are the new big employers and earnings from the assets could expand the tax net, sources opine.

The bill on cryptocurrencies, rumoured to be in the works will also have an intent to tax the earnings from them. The concern the bill may elucidate further is if these virtual currencies bring gains, then they could be taxed under the Capital Gains Tax regime, but if it's a service being provided, then it should come under the GST mechanism.

This means that the bill could comprise a direct tax provision, whereas on the services issue the GST Council may decide. Basis the recommendations to ban cryptocurrencies and create an official digital currency by the SC Garg panel set by the central government ahead of the last Budget Session, the Centre had issued  'The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021'.

Also Read: Law to regulate cryptocurrencies likely by Budget

The aim of the bill was stated to be the "creation of a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India." The bill also sought to proscribe all private cryptocurrencies in India and green flag a few exceptions to encourage the underlying technology of cryptocurrency and its uses.

Amid concerns over misleading claims of huge returns on cryptocurrency investment, Prime Minister Narendra Modi on Saturday, November 13, chaired a meeting on the way forward on the issue, with government sources asserting that such unregulated markets cannot be allowed to become avenues for "money laundering and terror financing".

It was strongly felt in the meeting that attempts to mislead the youth through over-promising and non-transparent advertising should be stopped, the sources said, signalling that strong regulatory steps are in the offing. 

Also Read: Parliamentary committee invites crypto players to discuss challenges of the industry

The Supreme Court in early March 2020 had nullified the RBI circular banning cryptocurrencies. Following this on February 5, 2021, the central bank had instituted an internal panel to suggest a model of the central bank's digital currency. 

The RBI had announced its intent to come out with an official digital currency, in the face of the proliferation of cryptocurrencies like Bitcoin about which the central bank has had many concerns.

Private digital currencies/virtual currencies/cryptocurrencies have gained popularity in the past decade or so. Here, regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks.

It can be noted that on March 4, 2021, the Supreme Court had set aside an RBI circular of April 6, 2018, prohibiting banks and entities regulated by it from providing services in relation to virtual currencies.