The Finance Ministry is racing against time to introduce the planned bill on cryptocurrency in the upcoming Winter Session of Parliament. This urgency comes in the light of what many in the government see as unchecked growth of an unregulated sector and can be gauged from the multiple meetings being held, including one chaired by Prime Minister Narendra Modi.
The Winter Session is likely to be held from November 29 to around December 13, and one of the sticking points that needs to be sorted out before that is the tax treatment of the sector, Moneycontrol has learnt from informed sources. These issues are expected to be dealt with soon and that cabinet approval could be sought this month itself, the sources added.
“We are working on the tax aspect of the cryptocurrency regulations. There are discussions ongoing at the highest levels of the government as well as with regulators like the Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI),” said a top government official.
Ultimately, how cryptocurrency trade and profits are taxed depends on what it is classified as, officials say. As reported earlier, while privately held cryptocurrencies will not be allowed as legal tenders, they will be allowed as assets.
Definition still being worked out
All of that comes down to the definition and the question of which body will regulate the cryptocurrency sector. If cryptocurrency is treated as a financial asset, which gives steady returns over a period of time, then it would be a financial asset under the jurisdiction of the RBI. But given the volatility of the cryptocurrency market, steady returns are not guaranteed, officials say.
If cryptocurrency is treated as a tradable asset, then SEBI will regulate the sector. In both cases, long-term capital gains tax is one of the taxes that will likely be applied, officials say.
“Though the final details are being worked out, it is likely that both regulators will have a major role in overseeing the sector,” said a second official.
Last week, RBI Governor Shaktikanta Das sounded the alarm on the bourgeoning sector and said that cryptocurrencies are a very serious concern from a macroeconomic and financial stability point of view. He also said that the number of Indians trading in cryptocurrency looks highly exaggerated.
By conservative estimates of the cryptocurrency exchanges, some 2 crore Indians hold investments in the sector worth around Rs 15,000-20,000 crore.
Govt studying implications on markets and real economy
The Finance Ministry and the regulators are studying the implications of the sector on the real economy and the financial markets. And so far, it does not make for good reading.
“One needs to consider whether cryptocurrencies are deepening and strengthening the financial markets and what is their contribution to the real economy. These aspects are being closely examined,” said the second official quoted above.
There are sections within the government who would still like a complete ban, as advocated by the RBI earlier and as recommended by a panel led by former economic affairs secretary Subhash Garg.
However, most believe that such a step would only be detrimental. However, the sector needs regulation and fast. Hence the planned introduction of the bill in the Winter Session.
On November 13, Prime Minister Modi chaired a meeting on cryptocurrency. After the meeting, sources said that advertisements by cryptocurrency companies, exchanges and other such entities which over-promise and are not transparent need to stop.
"Today’s meeting chaired by the PM on the way forward for cryptocurrency and related issues was a very comprehensive one," sources said. "It was strongly felt that attempts to mislead the youth through over-promising and non-transparent advertising be stopped," they had said.
On November 15, the Parliamentary Standing Committee on Finance, chaired by Member of Parliament Jayant Sinha, will also meet stakeholders from the industry.
“The outcomes from the PM’s meeting and the Parliamentary panel meeting will influence the version of the bill which is tabled in Parliament,” said the first official quoted above.