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A senior government official told Outlook Business that the FSB report, expected in October, will help the government decide whether to ban cryptocurrency transactions through wallets and will provide a legal framework to combat cryptocurrency trading in India.
The official, who spoke on condition of anonymity, said that the report will contain recommendations on how the legal contours of cryptocurrency trading in India will be formed.
The FSB is also studying international precedents in the field of cryptocurrency legislation, and its report is expected to determine India's legal policy to address money laundering and terrorist financing issues related to cryptocurrency trading that have recently emerged in India.
"We are waiting for the (FSB) report, which will be important from the point of view of crypto legislation. We also hope that it will cover how to process transfers from a wallet (crypto).
We will see if transfers from the wallet will be blocked, depending on what is offered in the report. The legislative part is still under development. When we taxed them (in the 2022 budget), we made it clear that the legislation was still under development. This report will greatly help solve the legislative aspect," he said.
The Federal Security Service is developing legislation on cross-border transactions in cryptocurrencies. It was established in 2009 under the auspices of the G20 by combining the efforts of national authorities, standard-setting bodies and international financial institutions to eliminate vulnerabilities and develop and implement strong regulatory, supervisory and other policies in the interests of financial stability.
India is an active member of the Federal Security Council and has three seats in its plenary session, which are occupied by the Minister of Economic Affairs, the Deputy Governor of the Reserve Bank of India and the Chairman of the Securities and Exchange Board of India. The secretariat of the Financial Development Committee under the Department of Economics coordinates with various financial sector regulators and other relevant agencies to present India's views to the Financial Stability Board.
The situation in India
Cryptocurrencies are not regulated in India, but in the budget for 2022, the government announced a 30 percent fixed tax on profits from transactions with cryptocurrencies, as well as a source of tax deductions of 1 percent.
"The Reserve Bank of India believes that this should be banned. She made her position clear. The government believes that until legislation is formed around this, it should be taxed.
Taxes cannot be waived, which is why taxes are declared in the budget. The FSB report will help resolve this issue, whether encryption should be banned or not. This requires international regulations. Banning this only in India will keep the grounds open for transactions through cross-border wallets," he said.
What about the introduction of the Goods and Services Tax (GST), which was also discussed? "As soon as you look at the legal side of cryptocurrencies, the next step, of course, will be the introduction of a tax on goods and services. To enter GST, it must first be classified according to the type of asset - whether it is a good or a service. We expect the report to help solve these problems. These discussions are largely ongoing and depend on whether we want to legalize them," he said.
Position of the Reserve Bank of India
The Reserve Bank of India was categorically against cryptocurrencies. Governor Shaktikanta Das has repeatedly stressed that cryptocurrencies pose a danger to the country, and anything that derives its value solely from speculation is speculative in nature. The central bank has identified a number of risks associated with cryptocurrency asset markets, including links between these markets and the regulated banking system. "The identification and assessment of risks associated with crypto assets faces data shortage problems," the Reserve Bank of India has stated in the past.
In a written response to the Lok Sabha, Finance Minister Nirmala Sitharaman stated that the Reserve Bank of India supports the ban on cryptocurrencies and that it has conveyed to the ministry that it cannot be considered legal tender as it has not been issued by the Reserve Bank of India. "In view of the concerns expressed by the Reserve Bank of India about the destabilizing impact of cryptocurrencies on the monetary and financial stability of the country, the Reserve Bank of India recommended the development of legislation in this sector. The Reserve Bank of India is of the opinion that cryptocurrencies should be banned," says Sitaraman's response to the Lok Sabha.
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