The suggestion from the industry body comes when the government is ready to introduce the Cryptocurrency and Regulation of the Official Bill of Digital Currency, 2021, in the Winter Session of Parliament. The bill seeks to ban all private cryptocurrencies in India and create a framework for the official digital currency to be issued by the Reserve Bank of India.
Additionally, he said the government should consider establishing a permanent advisory council comprised of representatives of regulators, legislators and other stakeholders who can advise on the challenges associated with the new asset class.
In seeking special status, the IIC recommended that crypto assets should not be subject to the provisions of existing securities regulations. Instead, a new set of regulations would be appropriate, taking into account its decentralized and non-jurisdictional nature.
This would mean the regulatory focus, mainly on transactions and custody, rather than on issuance (except when the issuance involves an Initial Coin Offering (ICO) to the public by an issuer established in India) โ, said CII in its note.
In addition, he said that the government could establish centralized exchanges and centralized custodial providers under the market regulator Securities and Exchange Board of India (Sebi), and that they must comply with the KYC and anti-money laundering law compliance requirements that they apply to intermediaries in financial markets.
They must be legally responsible and responsible for the custody of the cryptographic / digital tokens held by the participants in the digital wallets offered by them.
To support this obligation, centralized exchanges may be required to maintain minimum capital and guarantee funds while meeting investor disclosure requirements for business and investment risks, he said.
The industry body also recommended extending the treatment of crypto tokens as 'securities' of a special class with respect to income tax law and taxes on goods and services. Whereas as "capital assets" for income tax purposes, unless a participant specifically treats them as "shares in trade".
IIC also recommended imposing tax reporting requirements on participants investing or trading crypto assets (whether through a centralized crypto exchange or otherwise) through specific disclosures in income tax returns.
"Regulators and tax authorities must begin to develop the capacity to harness the power of big data and analysis, for surveillance, of the digital trail embedded in the blockchain network on which crypto assets are executed, he noted.
