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India has ramped up its efforts to build a strong legal framework for Virtual Digital Assets (VDAs), emphasizing the importance of international collaboration to address cryptocurrencies’ borderless nature.
During the parliamentary discussions held on 16 December 2024, the administration stated that a ‘Discussion Paper’ may be introduced to define regulatory attitudes, but no precise timeline is set currently.
BREAKING: 🇮🇳 Crypto regulation discussed in parliament: 🧵
1⃣ Comprehensive Framework: The government is working on a regulatory framework for VDAs but emphasizes the need for international collaboration to address their borderless nature and avoid regulatory arbitrage. pic.twitter.com/Njlvw48Urj
— Crypto India (@CryptooIndia) December 16, 2024
Global Collaboration Required, No Fixed Timeline Set
Responding to queries in the Lok Sabha, the Ministry of Finance, Pankaj Chaudhary, reinforced its position on VDAs, stating that a complete framework can only be implemented with global cooperation.
Chaudhary further stated that VDAs exist across national borders, making regulatory arbitrage a significant issue.
“VDAs are by definition borderless and require international collaboration to prevent regulatory arbitrage,” he said.
He addressed the dangers and advantages associated with VDAs requires a coordinated international strategy, as well as adopting a common taxonomy and regulatory standards.
The government has held both formal and informal discussions with stakeholders, including business leaders and international organizations. However, according to Chaudhary, there is presently no set deadline for the introduction of full crypto regulations. He said that the measures under consideration would be focusing on protecting the Indian economy and ensuring financial and monetary stability.
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Currently, Crypto Capital Gains Are Heavily Taxed In India
Since March 2023, all VDA transactions in India have been governed by the Prevention of Money Laundering Act (PMLA) of 2002.
Income from VDAs is currently taxed under the Income Tax Act of 1961. This taxing decision was implemented in 2022, after the said that profits from VDA transactions would be subject to a 30% tax.
Meanwhile, VDAs are also subject to regulatory scrutiny under other legislation, such as the Information Technology Act of 2000 and the Companies Act of 2013. These frameworks aim to control the sector’s risks while providing legal certainty to firms and investors.
Furthermore, the Income Tax Appellate Tribunal (ITAT) in Jodhpur has declared that cryptocurrencies will be classified as capital assets. This ruling clarifies that income from cryptocurrency sales, particularly transactions completed prior to 2022, should be taxed as capital gains.
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India Will Engage With G20 Countries For Framework
India has faced significant challenges in regulating cryptocurrencies. The borderless nature of VDAs poses unique risks in areas like investor protection, money laundering, and economic stability.
In fact, during its G20 presidency in 2023, India adopted the IMF-FSB Synthesis Paper and the G20 Roadmap on Crypto Assets, which provided a coordinated policy framework to address the risks posed by cryptocurrencies and a global blueprint for crypto governance.
Chaudhary emphasized that India remains committed to aligning its regulatory efforts with global standards.
“All jurisdictions, including India, are expected to evaluate their country-specific characteristics and risks, and engage with standard-setting bodies and the G20,” he said during the parliamentary session.
The government recognized that investor protection measures alone cannot eliminate all risks and that international cooperation will play a vital role in addressing these issues.
With regards to that, the government reportedly planned to release a discussion paper seeking stakeholder feedback on proposed regulatory measures.
The paper will likely address key issues, which will include balancing innovation with investor protection, ensuring compliance with anti-money laundering laws, and managing the financial stability risks posed by VDAs.
For the time being, stakeholders await further clarity through the upcoming discussion paper and continued engagement with the government on regulatory developments.
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Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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