The government is set to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the Winter Session of Parliament for consideration and passing. The bill seeks to prohibit all private cryptocurrencies in India and will create a framework for the official digital currency to be issued by Reserve Bank of India.
So, as there is going to be regulation, the Confederation of Indian Industry (CII) had made a representation to the government and the standing committee. When asked what they had proposed Rajendra Chitale, Member of the CII National Committee on Financial Markets said there is no case at all for cryptos to be treated as a medium of exchange.
"The CII has recommended that it
"Whereas the regulations around know your customer (KYC) and Anti-Money-Laundering (AML) need to apply. You need to apply the regulations around dealing and custody. You need to have therefore centralised exchanges that offer trading services to be regulated akin to stock exchanges. We need to have a framework around ensuring that they comply when they enroll clients or customer -- all the norms that intermediaries in the financial services industry apply when enrolling clients. So KYC and AML is nonnegotiable," he said, adding that they also suggested the decentralised exchanges could be made to provide information to tax authorities in relation to the transactions conducted by participants beyond a particular threshold.
We have also suggested that for tax purposes unless and until a particular participant treats it as a stock and trade, it should be treated as a capital asset. Also, the way the tax treatment should work is that there must be onus like in infrastructure laws in the US. Moreover, they made a specific provision for declaration of crypto holdings and crypto dealings in tax returns in the US. They also imposed obligations of reporting it for tax purposes on intermediaries. So a similar framework can be applied to India and effectively this could be a great revenue source for the government in the long run, Chitale explained.
When asked in terms of who regulates and what needs to be regulated exactly, Chitale said, it makes a lot of sense for this to be made special security and bring it under the Security and Exchange Board of India (SEBI), because we have a whole body of regulatory framework, which with modification could be applied to the issues of custody, to the issues of dealings and to the issues of disclosure and SEBI's experience and expertise here would come in handy.
"The opening paragraph of our recommendation suggests that it is actually a misnomer to call this asset class as cryptocurrency, it is actually a digital token that we are talking about and once you treat them as a special class of securities, we would be in a position to ensure that FCRA as a body of law -- with appropriate modifications -- can be readily applied. A lot of SEBI regulations can be modified and applied appropriately. The central question to my mind for regulation is custody and dealing and a vast majority of the regulations would give a head start for SEBI to be the regulator for this asset class," said Chitale.
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