The industry body’s suggestion comes when the government is set to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, in the Winter Session of Parliament. The Bill seeks to prohibit all private cryptocurrencies in India and create a framework for the official digital currency to be issued by the Reserve Bank of India.
It further said that the government should consider setting up a standing advisory council comprising representatives of regulators, policymakers, and other stakeholders who can advise on the challenges associated with the new asset class.
Pitching for special status, the CII recommended that crypto-asset should not be subjected to provisions of existing securities regulations. “Instead, a new set of regulations would be appropriate, keeping in mind their jurisdiction-less and decentralised character.
This would mean the regulatory focus, principally on dealings and custody, rather than on issuance (except where issuance entails an Initial Coin Offering (ICO) to the public by an issuer established in India),” CII said in its note.
It further said that the government could establish centralised exchanges and centralised custody providers under market regulator Securities and Exchange Board of India (Sebi), and they must adhere to KYC and anti-money laundering law compliance requirements that apply to financial markets intermediaries.
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They should be held legally accountable and liable for the safekeeping of the crypto/digital tokens held by participants in digital wallets offered by them.
To support this obligation, centralised exchanges may be required to maintain minimum capital and guarantee funds while complying with investor disclosure requirements for trading and investment risks, it said.
The industry body also recommended extending the treatment of crypto tokens as ‘securities’ of a special class with regards to income tax law and goods and services taxes. While as ‘capital assets’ for income tax purposes, unless specifically treated as ‘stock in trade’ by a participant.
CII also recommended imposing tax reporting requirements on participants investing or dealing in crypto assets (whether through a centralised crypto exchange or otherwise) through specific disclosures in income tax returns.
“The regulators and tax authorities must commence capacity building to harness the power of big data and analytics, for surveillance, of the digital trail embedded in the blockchain network on which crypto assets run, it noted.
