cryptocurrency regulation in India

The Indian government is reportedly planning to introduce cryptocurrency regulation in India by the next general Budget, which is in February next year. According to the reports, a cryptocurrency bill in India would most likely come around by the time of the next general Budget.

The proposed framework is likely to veer away from an earlier approach that had proposed a complete ban on cryptocurrencies. Instead, the government is likely to opt for regulating cryptocurrencies as an “asset” class, somewhat on the lines of commodities, with appropriate taxation of transactions and gains.

Officials of the Finance Ministry and the Reserve Bank of India (RBI) remain engaged in fine-tuning the conceptual framework and the necessary regulations.

Currently, India does not have any legal framework governing cryptocurrencies’ issuance, use, and trade. India is among the fastest-growing cryptocurrency markets globally. With an estimated 15 million Indians having invested in private cryptocurrencies in the recent past. A combination of factors including dozens of start-ups operating in this space has fuelled an unprecedented investment boom. Despite the seeming risks of investing in an unregulated product.

Cryptocurrency trading in India has witnessed a sharp uptick since May this year, after the RBI clarification that told regulated banks to not warn customers against cryptocurrency trading. That move capped a legal challenge to an earlier 2018 order by the central bank barring cryptocurrency transactions.

In 2019, a Finance Ministry committee had proposed a draft Bill – the Banning of Cryptocurrency & Regulation of Official Digital Currency Bill. The move was quietly scrapped.

Over the past several months, the central government seems to have preferred to tread cautiously on this matter. In March this year, Finance Minister Nirmala Sitharaman had said that the cabinet note on cryptocurrencies was nearing completion. “While we are very clear that the RBI may take a call on official cryptocurrency, but from our side we are very clear, we are not shutting all options off. We will allow a certain amount of windows for people to use so that the experiments in blockchain, Bitcoin will have that window available.”

In September this year, RBI Governor Shaktikanta Das was quoted as saying that the central bank had conveyed its serious and major concerns about cryptocurrencies from the point of view of financial stability. “The government will take a decision. I think we need more credible answers as to whether going forward with the whole private cryptocurrencies, what contribution will it bring to the Indian economy,” Das had said.

Earlier this month, Sitharaman was quoted saying that the proposed framework was “in the last stages for the Union Cabinet to take it up, have a discussion and take a position”.

Reports say, the important regulations could be around who can create and sell cryptocurrencies in India. As of now, anyone with a working smartphone or laptop and internet connection can create a new cryptocurrency and start selling it. This leaves a lot of scope for scams. The crypto bill 2021 could also include measures to protect investors against any wrongdoing. 

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