Industry body, Confederation of Indian Industries (CII) on Thursday urged the government to treat the crypto/digital tokens as ‘securities’ of a special class. This statement has come at a time when the government is planning to bring legislation to Parliament.

Pitching for special status, CII recommended that these should not be subjected to provisions of existing securities regulations. “Instead, a new set of regulations appropriate to the context of crypto/digital currencies and their jurisdiction-less, decentralised character, should be evolved and applied. This would mean 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),” it said.

The government has listed a Bill for the winter session of the Parliament to ban all the private cryptocurrencies and facilitate the introduction of Central Bank Digital Currency (CBDC) to be introduced during the session. The Bill is titled ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’.

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According to Lok Sabha Bulletin, the purpose of the Bill is “to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India; however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”

This is the second attempt to bring a Bill in the house to ban all private cryptocurrency. The government did list the Bill for the budget session to ban all private cryptocurrencies and facilitate CBDC. However, it did not bring the Bill. It did not list the Bill for the monsoon session. However, it has included this for the winter session.

Meanwhile, CII has recommended centralised exchanges and centralised custody providers may be established in India and they must be required to register with SEBI and to adhere to KYC and AML compliance requirements that apply to financial markets intermediaries.

“They should be held legally accountable and liable for safekeeping of the crypto/digital tokens held by participants in digital wallets offered by them. To support this obligation, the centralised exchanges may be required to maintain minimum capital and guarantee fund while complying with investor disclosure requirements which are prescribed by regulations from time to time, with respect to trading and investment risks,” it said.

It recommended extending the treatment of crypto/digital tokens as ‘securities’ of a special class with regards to income tax law and GST law. Crypto/digital tokens can be considered as ‘capital assets’ for income tax purposes unless specifically treated as ‘stock in trade’ by a participant/ assessee.

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It is also recommended to impose tax reporting requirements on participants who are investing or dealing in crypto assets (whether through a centralised crypto exchange or otherwise) through specific disclosures in income tax returns. Further, it said to safeguard the Indian public interest, the legal power to issue a crypto/digital token of Indian Rupee should be limited to Central Bank Digital Currency (CBDC) issuance by RBI.

Alternatively, if such issuance by any institution other than RBI is considered acceptable, such issuance must be subject to prior RBI approval which must be conditional upon compliance with stringent prudential norms of holding assets mostly in credit-risk free, treasury Bills/short duration sovereign securities of the government of India, besides maintaining CRR with RBI.