The government has no proposal to enact a law to regulate the transaction of crypto assets, the Finance Ministry informed the Lok Sabha on Monday.
“Currently, there is no proposal to bring legislation for regulating the sales and purchase of virtual digital assets in the country,” Minister of State in the Finance Ministry, Pankaj Chaudhary said in a written reply in the Lok Sabha. However, he added that for specific oversight purposes, such as Anti Money Laundering (AML) and Countering the Financing of Terrorism (CFT), the Financial Intelligence Unit India (FIU-IND) has been authorised to designate Virtual Digital Asset Service Providers (VDSAPs) as Reporting Entities (RE) under the Prevention of Money Laundering Act, 2002 (PMLA).
Additionally, Law Enforcement Agencies (LEAs) have the mandate to address illicit activities under existing legal provisions. “Crypto assets or Virtual Digital Assets (VDAs) are unregulated in India and the government does not collect data on these assets,” Chaudhary said.
Terminology Defined
Officially in India, the term ‘Crypto’ is not used; instead, it is referred to as ‘Virtual Digital Asset’ According to the Finance Act 2022, A VDA means any information, code, number or token (not being Indian currency or any foreign currency), generated through cryptographic means. It could be called by any name and provide a digital representation of value that is exchanged with or without consideration, with the promise or representation of having inherent value.
Chaudhary also highlighted that during India’s G20 Presidency last year, the International Monetary Fund (IMF) and Financial Stability Board (FSB) Synthesis Paper, along with the ‘G20 Roadmap on Crypto Assets,’ was adopted. This Synthesis Paper provides a co-ordinated and comprehensive policy and regulatory framework for crypto assets, addressing the full range of risks, including those specific to emerging markets and developing economies (EMDEs).
“All jurisdictions, including India, are expected to evaluate their country-specific characteristics and risks, and engage with standard-setting bodies and the G20 to appropriately consider any necessary measures for crypto assets,” Chaudhary said.
Taxation framework
Although there is no regulation, transactions in these assets are under a comprehensive taxation regime under the Finance Act 2022. It mandates a 30 per cent tax rate on the transfer of VDAs, with no deduction in respect of expenditure (other than cost of acquisition). Moreover, losses from the transfer of VDAs cannot be set off against any other income and cannot be carried forward to subsequent years. Earlier, such transfers were taxed under general provisions of the Act. Section 56 of the IT Act was also amended to cover the scenario where VDA is gifted to provide for taxation in the hands of the recipient.
To provide for a withholding mechanism from the transactions in VDAs, section 194S of the IT Act provides for a deduction of tax on the transfer of virtual digital assets to a resident at 1 per cent. Further, no tax is to be deducted in case the payer is the specified person and the value or the aggregate of such value of consideration to a resident is less than ₹50,000 during the financial year. In any other case, the said limit is ₹10,000 during the financial year