India to release consultation paper on crypto regulation soon

India is preparing to release a consultation paper on cryptocurrency regulations between September and October 2024, according to a recent report. 

The paper will be developed by a panel led by the Secretary of the Department of Economic Affairs (DEA) and aims to gather feedback from various stakeholders. 

This consultation process is part of India's broader effort to establish a comprehensive regulatory framework for digital currencies, reflecting the government's proactive stance on the matter.

The forthcoming consultation paper is seen as a significant step toward addressing the challenges posed by cryptocurrencies, both globally and domestically. 

The initiative follows the statement made by Finance Minister Nirmala Sitharaman in October 2023, where she highlighted that G20 nations have reached a consensus on a unified approach to regulating cryptocurrencies. 

This international alignment underscores the importance of coordinated efforts in managing the risks and opportunities associated with digital assets.

Currently, India does not have a specific regulatory framework for cryptocurrencies, but the country has implemented a tax regime that includes a 30% flat tax on crypto profits and a 1% tax deducted at source (TDS) on transactions. 

While these measures have been criticised by industry leaders for potentially stifling growth in the sector, the government has retained them in the 2024-25 Union Budget. 

Industry leaders continue to call for ongoing dialogue with regulators to create a more supportive environment for the emerging Web3 sector.

The Reserve Bank of India (RBI) has also expressed concerns about the cryptocurrency ecosystem, warning of its lack of accountability and stability. 

In its May 2024 bulletin, the RBI cautioned that some cryptocurrency systems could be prone to crises if not properly safeguarded. 

Despite these warnings, the legal status of cryptocurrency trading and transactions in India was reaffirmed earlier this month by the Orissa High Court, which clarified that such activities are neither banned nor illegal in the country.

In a noteworthy development, Binance, the world’s largest cryptocurrency exchange, has re-entered the Indian market after ensuring compliance with local regulations. 

This re-entry highlights the evolving regulatory landscape in India and the importance of adhering to the emerging guidelines. 

As the government prepares to release its consultation paper, industry participants and investors are keenly awaiting the potential changes that could shape the future of cryptocurrency regulation in India.