The RBI has clarified that as per a 2020 Supreme Court order, its old circular banning payments related to cryptocurrencies is no longer valid. Investors and crypto companies are relieved, but more clarification is needed. Mint takes a deep dive.
The Reserve Bank of India (RBI) has clarified that as per a 2020 Supreme Court order, its old circular banning payments related to cryptocurrencies is no longer valid. Investors and crypto companies are relieved, but more clarification is needed. Mint takes a deep dive.
Will bank transactions for investors get easy?
Crypto exchanges in the past suspended rupee deposits on their platforms after some banks severed ties citing an informal guidance from the Reserve Bank. This caused investors problems with deposits and withdrawals even as they looked to cut losses during the recent crash when the crypto market capitalization dipped more than $1 trillion. Industry professionals believe RBI clarification will encourage banks to update their compliance teams and provide banking access to Indian crypto exchanges. Experts, however, feel banks may still have some concerns regarding anti-money laundering policies.
Can banks deny access to the crypto industry?
The central bank, in its circular, advised lending institutions to continue to carry out customer due diligence processes in line with regulations governing standards for know your customer (KYC), and anti-money laundering (AML) and foreign exchange management Act (FEMA). While banks now won’t be able to quote the 2018 circular to deny services to the industry, sources in the industry have said that some lenders consider the crypto industry risky for the time being. Moreover, RBI governor Shaktikanta Das has flagged concerns over cryptocurrencies in the past.
What is India’s legal position on cryptocurrencies?
The Supreme Court in March 2020 said RBI could notify cryptocurrencies as “other similar instruments" under the definition of the term ‘currency’ in FEMA. Therefore, the trading in crypto can fall within the purview of RBI. But reports suggest that crypto exchanges deem the Securities and Exchange Board of India to be the more appropriate regulator.
How exactly are crypto currencies taxed?
Regulations in India are not clear. A recent industry white paper suggested cryptocurrencies be defined as digital assets such as gold, stocks and marketable securities, and not currencies. As of now, crypto could be deemed as capital assets if they are bought for investments. If an investor holds cryptocurrencies for 36 months or more, the gains would be taxable as long-term capital gains, and for less than 36 months, short-term capital gains. For those who frequently trade in crypto, profits are likely be taxed as business income.
What’s the future of crypto regulation?
The government is formulating a bill on cryptocurrencies. While the contents are not yet known, the Centre in February had said that the bill would seek to ban all private crypto such as bitcoin and ether. However, of late, government hinted that it would take a “calibrated approach" towards digital assets. As per experts, given the place of cryptocurrencies in India’s finance ecosystem, an outright ban seems to be unlikely. However, some sort of regulation or oversight control by the government may be expected.