Many countries already have taxation laws for cryptocurrency gains, but India’s cold response to the virtual currency ecosystem makes it tough for investors to file their tax returns. As cryptocurrency regulations in India remain uncertain, a growing number of Indians are accessing digital currencies by buying and selling on foreign platforms, which may have better features and customer service.
In the winter session of the Indian parliament, of 2021, the country’s first cryptocurrency legislation was likely to be presented. The Cryptocurrency and Regulation of Official Digital Currency Bill are expected to contain disclosure requirements for income tax returns for crypto assets in India as well as on foreign crypto exchanges by Indian residents.
This may allow the government to regulate cryptocurrency transactions, and to make cryptocurrency legal which could give investors more confidence to invest in the sector. It is believed that cryptocurrency will generate tax revenues for the Indian government.
The Government wants India’s crypto regulations to be in accordance with the global framework. Crypto bill will define cryptocurrency as an asset and its use as currency or payment will be banned. The bill also proposes to introduce a system for ‘distributed ledger technology’ to record, share and synchronize transactions. It will also set the groundwork for the creation of the digital currency to be issued by the Reserve Bank of India (RBI), which will be regulated by the RBI Act.
The Bill proposes a penalty as well, for violations by individuals as well as corporate bodies. The offenses under the law will be non-bailable. Offenses under this can be punished with a jail term of one and half years and a fine of up to 50 crores. The RBI will be the regulator for crypto, but the assets will be regulated by SEBI. The bill also demands to ban all the private cryptocurrencies in India and ease the implementation of the regulation.
Since a cryptocurrency, lacks any inherent value or liquidity, it might prove difficult to actually ban the tokens which could be called an asset, a commodity, a currency, or even a security. Millions of people around the world could hold such a currency which are basically pieces of code that can’t be ‘banned’ and still agree to use it as a medium of exchange, which will then give it value.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which was introduced in Parliament’s Winter Session 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 upcoming Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is different from the earlier one – ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019’.
While the older law sought to impose a complete ban on all crypto-related activities, including mining, buying, holding, selling and dealing, the new one will look to make a clear distinction when it comes to its often used categorization as a currency.
RBI Governor Shaktikanta Das reiterated his opposition to cryptocurrencies, saying these pose a serious threat to any financial system since they are unregulated by central banks. The RBI 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.
The Reserve Bank of India’s (RBI) order banning banks from supporting crypto transactions, was reversed by the Supreme Court order of March 2020.
Since 2013, various warnings were issued by the RBI through its press releases regarding the risks of the use of cryptocurrencies for the financial system of the country. The Inter-ministerial Committee on February 28, 2019, had also released a report recommending certain measures in relation to cryptocurrencies, which included a complete ban on private cryptocurrencies. This committee had also prepared a draft bill known as Crypto Token and Crypto Asset (Banning, Control, and Regulation) Bill, 2018. However, the use of cryptocurrency was never banned.
In April 2018, the RBI issued a circular banning regulated financial institutions from providing services to businesses trading in cryptocurrencies, which put the entire Indian cryptocurrency trading industry in a quandary. The validity of the circular was challenged before the Supreme Court in various writ petitions led by crypto-trading entities. In its decision on Internet and Mobile Association of India v. Reserve Bank of India, the Supreme Court deliberated on cryptocurrency and struck down the circular.
