India to ban trade in cryptocurrency, government working on a law

The government is planning to bring in a law to ban trade in cryptocurrency, sources have told Moneycontrol, a move that will come as a huge blow to an industry that has been booming during the lockdown.

The Supreme Court had in March 2020 set aside a Reserve Bank of India’s circular that prohibited banks and financial institutions from providing services related to cryptocurrencies. Indian and overseas cryptocurrency majors have been waiting for clarity from the government or the RBI on digital tenders following the order.

“There was a view in the government that banning it through a law would be more binding. It will clearly define the illegality of the trade. We have forwarded a note to related ministries for inter-ministerial discussions,” a government official told Moneycontrol on condition of anonymity.

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The government has been holding consultations with law ministry, ministry of information and technology and the RBI for a framework of a law that will formally end trading in cryptocurrency in India, the official said.

“We are working on it. After inter-ministerial consultations, it (the note) would be presented to the cabinet for approval. Once Parliament resumes for the session, we are hoping to get it ratified,” the official said.

In 2018, the RBI prohibited regulated entities from providing services to any individual or business dealing in digital currencies like bitcoin.

Junking the RBI circular, the Supreme Court had said citizens had the right to create a new industry of cryptocurrencies and exchanges along with the fundamental right to trade.

The government had in 2017 set up a panel led by then finance secretary Subhash Garg to study the ecosystem of cryptocurrencies.

In its report, the panel proposed a ban on all forms of private virtual currencies. However, it also asked the RBI and the government to look at the possibility of official virtual currency.

It suggested a fine of up to Rs 25 crore and imprisonment of up to 10 years for anyone dealing in them.

The income tax department issued notices to 500,000 investors, bringing the platforms, which are private, trading in virtual currencies under the scanner.

The notices asked whether taxes had been paid on the rise in valuations after a surge in prices.

The indirect tax department, too, issued notices to the exchanges and sought explanations on whether they were treating cryptocurrencies as the supply of goods or services and if they were paying Goods and Services Tax.

As reported by Moneycontrol, millions of dollars worth of business in cryptocurrency is being done every week, with the lockdown pushing up the volumes. The government, industry insiders said, was losing out on precious revenue by not coming up with a regulatory mechanism.

A growing number of investors have found refuge in virtual currencies as traditional assets have taken a beating over worries about the health of the economy battered by the coronavirus outbreak.