Thomas Daniels
India is not poised to implement regulations on the cryptocurrency sector in the near future, according to Pankaj Chaudhary, Minister of State for Finance. This statement was made in response to inquiries by GM Harish Balayogi, a member of parliament, regarding the government’s position on cryptocurrencies.
Balayogi’s questions sought clarity on the extent of government research and initiatives aimed at understanding the crypto sector and whether any legislation is forthcoming. Chaudhary, in his written reply on August 5, confirmed there is “no proposal” to regulate the “sales and purchase” of cryptocurrencies, which the Indian constitution refers to as virtual digital assets.
Chaudhary indicated that the Financial Intelligence Unit (FIU) is “authorized” to designate Virtual Digital Asset Service Providers as reporting entities. These entities must adhere to the stipulations of the Prevention of Money Laundering Act (PMLA) of 2002, enabling the regulator to monitor illicit activities such as money laundering and terrorism financing.
Despite the absence of a robust regulatory framework, law enforcement agencies, including the Reserve Bank of India, are equipped to investigate and act against illegal activities under existing laws. Recently, the Directorate General of GST Intelligence issued a show-cause notice to Binance, demanding the exchange pay $86 million in due taxes.
Regarding government research, Chaudhary noted that no data is collected on cryptocurrencies as it is an “unregulated” sector. He also referenced the G20 Roadmap on Crypto Assets, adopted under India’s presidency last year. This roadmap, derived from a joint IMF-FSB synthesis paper, provides recommendations for member nations on approaching crypto regulations. Chaudhary stated that G20 nations, including India, are currently evaluating the “country-specific” risks and benefits associated with cryptocurrencies, with plans to coordinate with global “standard-setting bodies” before considering any regulatory measures.
Chaudhary did not mention an upcoming discussion paper that will reportedly clarify the government’s stance on cryptocurrencies. Last month, Ajay Seth, Secretary of Economic Affairs, announced that an inter-ministerial group comprising multiple regulators is working on a “wider policy for cryptocurrencies” following IMF-FSB guidelines. This paper is expected to be released before September 2024.
Currently, India has a licensing regime implemented by the FIU, which mandates locals to report their crypto holdings and pay a 30% tax on capital gains, as per a tax law passed in 2022. The nation is also actively developing its central bank digital currency, the e-rupee, which achieved 1 million retail transactions in late June. Initially limited to local banks, the pilot phase now invites applications from payment firms, with AmazonPay and GooglePay showing interest in enabling e-rupee transactions on their platforms.
