Individuals and corporations violating government rules on crypto finance will face fines of up to Rs 20 crore and a jail term of 1.5 years, according to the proposed legislation to regulate cryptocurrency in India. All private cryptocurrency will be regulated and not banned, as was planned earlier. However, crypto will not be recognised as currency or legal tender. The legislation’s name has replaced the word “cryptocurrency” with “cryptoasset”. The bill seeks to minimise financial stability risk by suitably ring-fencing the formal financial sector from crypto assets.
The government plans a “general prohibition on all activities by any individual on mining, generating, holding, selling, (or) dealing” in digital currencies as a “medium of exchange, store of value and a unit of account”. The bill is aimed at consumer and investor protection, and to prevent tax evasion and money laundering. Flouting these rules will make one liable to non-bailable arrest without a warrant. As a deterrent to those found using these assets for terror-related activities, the prevention of money laundering act will apply with suitable amendments
Cryptoassets will be regulated by the Securities and Exchange Board of India (SEBI). The Reserve Bank of India’s virtual currency has not been clubbed with this bill and the central bank will regulate any issues related to digital currencies. The bill empowers the central government to exempt certain activities in the public interest.
It proposes the establishment of a facilitative framework for “distributed ledger technology” and lays the groundwork for the creation of the official digital currency (digital rupee) to be issued by RBI, which is to be regulated by the RBI Act.
A cutoff date will be prescribed for those having these assets to declare and bring it under regulation and exchanges, the draft bill says.
The size of crypto assets in India is about Rs 45,000 crore with about 15 million investors.
As the underlying technology of crypto-assets is still evolving and has many uses, the bill proposes exemption to any person using the technology underlying any cyrptoasset for any lawful activity. However, the underlying technology when used for purpose of experiments and research cannot be used for making or receiving any payment.