As you know, Cryptocurrency has dominated almost every country, including India itself. You may be shocked to know that India is now the country with the highest number of people dealing in Cryptocurrency, surpassing the USA, Russia & many other countries.
Cryptocurrency is based on Blockchain technology, and hence no information is available until & unless self-declared. Now, what is the Blockchain? A blockchain is a decentralized ledger accessed among the nodes of a computer network. Similar to the database, a blockchain stores information digitally. Blockchains play a crucial role in cryptocurrency systems, such as Bitcoin, to maintain a secure and decentralized record of transactions.
You can refer to our previous blog
, "Blockchain- Beyond Cryptocurrency
", for more explanation.
But this blog is all about valuable insights on the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.
The government has decided to list Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 for presentation in the Lok Sabha in the winter session. The Bill was previously presented in the budget session as well but could not be introduced as the government decided to redraft it.
The government has no plans to boost the cryptocurrency sector in India; Finance Minister stated it in the Lok Sabha recently. A Bill on Cryptocurrency and Regulation of Official Digital Currency is expected to be present during the seventh session of the Lok Sabha. Presumably, the government plans to ban all private cryptocurrencies, with certain exceptions
The new Cryptocurrency bill is set to empower regulators and government agencies, including the Securities and Exchange Board of India (Sebi), Reserve Bank of India (RBI), and the tax department, to scrutinize Know Your Customer (KYC) data of investors that crypto exchanges have collected from clients. According to rumours, the new regulations would mandate cryptocurrency exchanges to share their KYC data, which mainly includes details of their investors, with the government. The new cryptocurrency framework would also establish a uniform KYC process that every exchange must adhere to. As things stand today, different cryptocurrency exchanges have different KYC processes.
The first control of Cryptoassets will remain with the existing crypto platforms, regulated by India's Securities and Exchange Board (SEBI). A cut-off date will be issued for those holding crypto assets to declare and bring under the crypto exchange platforms the SEBI will regulate. Reserve Bank of India's proposed virtual currency has not been clubbed with the new crypto legislation. However, the central bank will regulate issues related to Cryptocurrency.
Some details by Finance Minister itself
Finance minister Nirmala Sitharaman stated on 30.11.2021, i.e. Tuesday, "The government plans to table a redrafted bill on cryptocurrency in the winter session of Parliament after the approval of Cabinet, and notified the Rajya Sabha that income earned from investing in cryptocurrencies is taxable". She added, The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks to form a framework for designing the official digital currency to be issued by the Reserve Bank of India (RBI). According to the words on the street, it aims to ban all private cryptocurrencies while promoting the underdog technology of Cryptocurrency and its benefits for certain exceptions (not defined till so far).
The income earned by crypto and other related services providing platforms is liable to tax under Business or Profession Head under Chapter-IV of the Income-tax Act, 1961. She added that the applicability of the tax rate would depend on the status and category of the taxpayer.
On another query, whether the government has conducted any study for regulating Cryptocurrency, Finance Minister said that a study was performed by the government through a research organization on 'Virtual Currencies: An Analysis of the Legal Framework and Recommendations for Regulation' in July 2017. After that, the government constituted an Interministerial Committee (IMC) on 2nd November 2017 under the Chairmanship of Secretary (Economic Affairs) to study the issues related to Virtual Currencies and propose specific action to be taken in this matter.
For regulation of cryptocurrencies, she further clarified that the question of monitoring or regulating cryptocurrency transactions, if any, is consequent to the passage of the Bill in Parliament."
What are we going to witness new?
In 2019, the Bill was named 'A Blanket Ban'; The 'Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019' stated that no one should mine, generate, hold, sell, or deal in issue, transfer, dispose of or use Cryptocurrency.
Fast-forwarding to 2021, a number of things have changed. The Bill is now called 'Cryptocurrency and Regulation of Official Digital Currency Bill, 2021', which was first presented for the Budget session but was deferred for more comprehensive consultations. Since its inception, the industry has witnessed exponential growth with greater participation. The government also consulted crypto associations, exchanges and other experts to decide on the way forward, fueling optimism among stakeholders.
Reportedly, there will be some government's own recognized platform on which crypto trading will be done. So, there may be a chance for a new regulatory body or cryptocurrencies to be brought under the Reserve Bank of India (RBI).
Also, since crypto involves cross-border transactions, a Securities and Exchange Board of India (SEBI)-like body will be required to monitor trades.
Talking about taxation, the government plans to bring investments in Cryptocurrency by Indian citizens on domestic & international platforms under the ambit of Income Tax instead of a straight outright ban. There are currently no specific guidelines under Income Tax Act, 1961. But it's more probable that a high rate will be used to slow down the rush that Indian crypto exchanges have witnessed over the past two years.
A glimpse: How the other countries regulated the Cryptocurrency
1: United Kingdom
: All the businesses engaged in Cryptocurrency related activities in the UK have to register with the UK's Financial Conduct Authority (FCA). Crypto-businesses are required to apply for the 'Authorized Payment Institutions' license. BCB Payments Limited was the first crypto asset company to get this license in the UK. Under UK law, all crypto-asset businesses must comply with Anti-Money Laundering (AML) & Combating the Financing of Terrorism (CFT). Bitcoins are recognized as property under UK law.
: Trading in cryptocurrencies is legal and regulated by the Monetary Authority of Singapore under Singapore's Payment Services Act, 2020. Crypto-Asset businesses must obtain a license to operate on the cryptocurrency platform. Public issues of digital coins are also regulated under Singapore's Securities and Futures Act, 2001. One of India's largest cryptocurrency exchanges, CoinDCX, migrated its holding to Singapore. The startup has till now raised over INR 100
crores from global investors.
: It initially banned Cryptocurrency but then legalized it. Previously in January 2018, Indonesia banned all parties involved in digital currency transactions. However, in 2019, Indonesia published regulations to regulate the trading of cryptocurrencies as a commodity under its Commodity Futures Trading Regulatory Agency(CFTRA). Any entity dealing in Cryptocurrency as commodity futures must comply with AML/CFT norms. The entities must also report to the Indonesian Financial Transaction Reports and Analysis Center.
:1 In 2018, Canada issued a notice clarifying that securities law compliances will apply to crypto-businesses offering coins or tokens. In January 2020, another statement explained the situations where securities law would apply to platforms facilitating trading of Cryptocurrency. From June 2020
, Canada's money laundering law requires all entities dealing in digital currency to register under the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and implement the applicable AML/CFT measures.
Thus, all the above countries that have introduced laws to regulate cryptocurrency trading have taken good care of fraud and money laundering activities; they have subjected cryptocurrency businesses to the respective AML/CFT measures. India can also follow a similar approach to this.
All in all, India is yet to witness the upcoming regulations for Crypto Bill. Some information is already on the street, along with some rumours. We currently don't know which cryptos will get banned and declared official. This step is taken to protect our Real Currency, i.e. Rupees, so its value remains in the global market for foreign exchange. As we know, there's no actual business behind Cryptocurrency; people are just trading money for money. Banning Cryptocurrency at a single go could significantly impact the economy in terms of capital loss. The government has taken such a right decision for making it legalized.