India‘s digital asset industry hangs in the balance as the country’s Department of Economic Affairs (DEA) prepares a consultation paper on digital asset legislation.
According to local media, a panel led by the Secretary of the DEA is expected to release the consultation paper in September or October, inviting stakeholders’ feedback on how to regulate digital assets. It serves as a sign that the national government, previously reticent to regulate the space, has decided to take an active interest in shaping the future of the digital asset industry in India.
Despite the country having the largest number of digital asset owners worldwide, with an estimated 93.5 million, India has been holding off on regulating digital assets up to now. Instead, it implemented a stringent tax regime on digital asset transactions: a 30% tax on unrealized digital asset gains and a 1% tax deducted at source, implemented in April 2022.
However, in October 2023, Finance Minister Nirmala Sitharaman noted that the Group of 20 (G20) nations had adopted a unified approach to regulating the space and indicated that countries must henceforth begin to implement this approach.
“Given the understanding that globally now all of us are on the same page about how regulations can happen, country and their specific legislative arrangements will also have to be worked out,” said Sitharaman. “So it will be at the same time working across countries, between countries in a macro sense and also coming down to the level of individual countries and their own measures that they would want to take.”
The DEA’s consultation paper is expected to address the broader concerns surrounding regulating digital assets, including those raised by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).
In May, SEBI — India’s securities and commodity markets watchdog — proposed that more than one regulator should monitor digital asset trading in the country. Specifically, it suggested SEBI could oversee initial coin offerings (ICOs), manage digital assets classified as securities and issue licenses for equity-market-related products, while digital assets backed by fiat currencies could be administered by the RBI, the country’s central bank and primary banking regulatory body.
However, the RBI has consistently maintained a suspicious stance against digital assets trading, saying it can result in a loss of income from money creation for central banks and bring about tax evasion, as well as favoring a complete ban on stablecoins. The central bank also said that decentralized peer-to-peer transactions in digital assets pose fiscal stability risks as they depend on voluntary compliance.
The impending consultation paper will likely seek to find a compromise between these approaches while keeping in mind the interests of India’s nearly 100 million digital asset owners.
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