Demystifying and regulating Cryptocurrencies in India

Of late, Cryptocurrencies have taken the financial world by storm and investors are in mad rush to bet their monies in crypto trading – however, the unpredictable nature of crypto trading turned the fortunes of investors upside down in no time. As of now, it appears to be only speculative trading with not much knowledge and information about the underlying asset among the investing public.

Given the lack of knowledge, volatility and uncertainty around crypto currency, Central Government decided to introduce Cryptocurrency?and Regulation of Official Digital Currency Bill, 2021, to regulate crypto currency dealings in India.

The underlying intent of this Bill is to introduce an official digital currency regulated by Reserve Bank of India (RBI) and to ban all private cryptocurrencies in India.

In the light of such crypto currency bill, the Confederation of Indian Industries (CII) has provided a suggestion to the government to treat the crypto tokens as ‘securities’ of a special class.

A standing advisory council constituted of financial market regulators, policymakers and other stakeholders should provide advice on the challenges associated with this new asset class.

Another focal point of the discussion is formation of a new set of regulations to handle matters associated with crypto currency given jurisdiction-less and decentralised character of crypto currency.

Prime focus of proposed regulatory mechanism is to regulate the dealing and custody of crypto currency along with guideline for issue of Initial Coin Offering (ICO) to the public by an issuer established in India.

Establishment of centralised exchanges and centralised custody providers under market regulator Securities and Exchange Board of India (SEBI) and making them accountable and liable for any improper handling of crypto/digital tokens held by participants in digital wallets offered by them is crucial to preserve economic interests of crypto holders.

An obligation on such stock exchanges to maintain minimum capital and guarantee funds as such funds may infuse a sense of security in participants.

It is crucial to ensure such central exchanges comply with applicable compliance requirements.

CII has suggested expanding the treatment of crypto tokens as ‘securities’ of a special class as capital assets for income tax law purpose as well as GST, except in case they are treated as ‘stock in trade’ by a participant.

Another crucial aspect is to develop guidelines for tax reporting requirements on participants investing in or dealing with crypto assets to keep a track of crypto dealings.

To handle righteously with crypto transactions, it is imperative that a robust regulatory and tax regime is equipped with right strength in terms of technology and manpower with assistance of big data and analytics, to monitor and regulate crypto transactions.

Proposed Bill is right step to regulate crypto transactions in India provided right measures are in place to strike the right balance amid interests of regulatory authorities, fund houses and crypto traders.

source : The Economic Times