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Shaktikanta Das, the governor of the Reserve Bank of India (RBI), on Wednesday reiterated the central bank’s concern over cryptocurrency investment in India. Mint decodes the legal and regulatory landscape with regard to cryptocurrency in the country:

Why are there regulatory concerns?

First, if a large number of Indians invest their savings in cryptocurrency, the demand for rupee-denominated savings like fixed deposits (FDs) will fall and hence the ability of banks to lend out this money. The difficulty of tracing cryptos also limits the government’s ability to tax this amount. In that respect, cryptocurrency is a threat to the rupee. Second, it can be used for criminal activity or money laundering since it is relatively difficult to trace and seize. Third, investors in cryptos are vulnerable to hacking, scams, and losses due to sheer volatility.

Does RBI recognize cryptocurrency?

The central bank does not recognize cryptocurrency as legal tender. In 2018, it prohibited banks from processing transactions in cryptocurrency, bringing much of the country’s crypto industry to a halt. However, the Supreme Court invalidated the ban in 2020, leading to a revival of the industry. The ruling coincided with a surge in the prices of cryptocurrencies in the following 12-18 months. At 48.6 lakh, bitcoin is up around 10 times from its price in March 2020. Cryptocurrency investors and investments have also shot up over this period.

Crypto market
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Crypto market

What is the tax position on cryptocurrency?

Investors who make gains on cryptocurrency trading or investment will be liable to pay tax. If they are active traders, this will be considered business income and taxed at slab rate. If they are investors, the gains will either be short term (slab rate) or long-term capital gain (20% with indexation after a three-year holding period).

Has RBI’s stance changed?

RBI is not in favour of cryptocurrencies, but it is exploring the possibility of a Central Bank Digital Currency. Das said RBI has concerns from a macroeconomic and financial stability point of view. The Centre had listed a bill proposing a ban on cryptocurrency in India in February. But the bill was not introduced in parliament, and the government may have softened its stance somewhat. A parliamentary panel has asked major crypto industry stakeholders to provide their views on this subject.

How many Indians invest in cryptos?

A widely publicized figure of 100.7 million put out by BrokerChooser is viewed sceptically by industry players. In October, a newspaper ad claimed Indians have invested 6 trillion in cryptocurrency. According to Nishal Shetty, the chief executive officer of Wazir X, India has around 15-20 million crypto investors. In comparison, India has 25 million mutual fund investors. For stock markets, BSE reported 80 million Unique Client Codes registered with it in October. But the actual figure is likely to be lower.

 

 

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