The rising cryptocurrency usage in India, combined with Bitcoin’s rising price recently increased the government’s interest in the cryptocurrency market. In order to regulate the market, a committee was set up by the country’s Finance Ministry, which has been analyzing the cryptocurrency market, usage trends and the technology itself for few months.
According to reports on leading media outlets, the inter-ministerial committee is considering the implementation of mandatory Know Your Customer (KYC) norms to ensure safe transactions. Such an implementation will augment the existing foreign exchange regulations to include cryptocurrencies into its purview.
The committee has put forth few points for consideration by the government while drafting regulations. The committee wants cryptocurrencies to be governed by the Reserve Bank of India Act. of 1934; It also suggests the introduction of taxation for Bitcoin investors; drafting of investment and purchase guidelines for cryptocurrencies; implementation of FEMA act for cross-border cryptocurrency payments; and taxation on returns gained from cryptocurrency investments.
The government’s plans to implement KYC norms for cryptocurrency transactions doesn’t come as a surprise for many as such self-regulations are already implemented by the country’s cryptocurrency platforms. On the other hand, there have been reports in the past about the government’s plans to introduce capital gains taxes, akin to the ones that are applicable for stocks and commodities.
The capital gain taxes could be implemented in two slabs, with a higher tax rate for short-term gains and a lesser rate for long-term gains earned from cryptocurrency investments. The Indian Bitcoin industry has welcomed the government’s move to introduce cryptocurrency regulations as they believe that it will eliminate the uncertainties currently shrouding the ecosystem.
However, there is still a lack of clarity about whether any regulations introduced in the near future would turn out to be favorable to the industry or not. Otherwise, in a country with huge potential applications for cryptocurrencies and their underlying technology, strict regulations might end up hampering innovation and development instead of promoting it.
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