Wednesday, 09 Oct, 2024
By: Yash Gupte
India has highest number of crypto owners in the world at 11.50 crore, representing 15 percent of the Indian population aged between 18 to 60 years. Image Source: IANS
By including cryptocurrencies in India's money laundering regulations, officials will have more power to keep an eye on the movement of these assets outside of the nation.
To tighten its control over digital assets, the government has established anti-money laundering regulations on cryptocurrencies and other virtual assets. The Finance Ministry announced in a gazette notification that the anti-money laundering laws have been applied to cryptocurrency trading, storage, and related financial activities. After this, Indian crypto exchanges will have to report suspicious activity to the Financial Intelligence Unit India (FIU-IND). The action is in keeping with a global trend that calls for digital asset platforms to adhere to anti-money laundering regulations that are comparable to those that apply to other regulated companies like banks or stock brokers.
According to the Reserve Bank of India, cryptocurrencies should be banned since they are equivalent to Ponzi schemes. By including cryptocurrencies in India's money laundering regulations, officials will have more power to keep an eye on the movement of these assets outside of the nation. The Narendra Modi-led administration has been advocating for a more comprehensive international agreement to address the threats posed by cryptocurrencies as part of its leadership of the G-20 group. In August of last year, the ED searched the offices of a director of the company Zanmai Labs and froze bank balances totaling Rs. 64.67 crore that belonged to a company operating a well-known cryptocurrency exchange WazirX. The ED looked into similar cases involving other cryptocurrency-related businesses and applications last year, including CoinSwitch and E-Nuggets.
In India, 7.3 percent of the population owned digital currency in 2021, ranking fifth in the list of top 20 global economies for digital currency ownership as share of population. The use of crypto currency rose globally at an unexpected rate during the covid-19 pandemic in 2020 and 2021. The United Nations trade body, in a report has observed that in the year 2021, developing countries accounted for 15 of the top 20 economies when it comes to the share of the population that owns crypto currencies. The United Nations Conference on Trade and Development (UNCTAD) in its report has revealed that 12 percent of the Ukrainian nationals hold digital currency, the highest in the world. It was followed by its neighbor Russia which is on the second spot with 11.9 percent of its population having digital currency. UK and Australia have not made to the top 10 as UK is on the 13th position and Australia on the 20th. India is on the seventh position in the list as 7.3 percent of its population is in possession of digital currency. However, India has highest number of crypto owners in the world at 11.50 crore, representing 15 percent of the Indian population aged between 18 to 60 years.
Source: BrokerChooser
According to one of the policy briefs of the global body, recent market shocks involving digital currencies indicate that there are private dangers associated with holding crypto, but if the central bank intervenes to safeguard financial stability, the issue becomes a public one. The monetary sovereignty of nations may be at risk if crypto currencies take off as a common form of payment and even informally displace national currencies (a process known as cryptoisation).
In the policy brief "All that Glitters Is Not Gold: The High Cost of Leaving Crypto currencies Unregulated," the authors explore the factors that have contributed to crypto currencies' rapid adoption in developing nations, including the ease of remittances and their use as a hedge against inflation and currency risks. While crypto currencies can make remittances smoother, they may also make it possible to evade taxes and avoid paying them by facilitating shady transfers to places like tax havens where ownership is difficult to trace.
The legality of crypto currencies in India has been a hot topic of conversation. The Government of India had made a number of acts that clearly demonstrate their intention to provide crypto currencies a recognized legal status. The Indian finance minister in the Union Budget 2022 announced that "any income from transfer of any virtual digital asset shall be taxed at the rate of 30 percent." Further, tax deduction at source at the rate of 1 percent has been proposed for transactions involving crypto currency. The minister also stated that taxation of a virtual digital asset does not imply the legal recognition of crypto currencies. But the recent notification released by the central government shows that the Indian government is no longer in a mood to legalise the cryptocurrency but rather ban it in phases.
Users have the freedom to withdraw their deposits whenever they want even though the majority of cryptocurrency exchanges in India, including CoinSwitch Kuber and WazirX, merely operate as custodial wallets by facilitating the movement of the savings from Indian rupees to cryptocurrency and vice versa. It is anticipated that investors will be able to withdraw their money or transfer it to other physical wallets in the case of a ban as well. In case of a ban, apart from exchanges, multiple crypto startups in India will be forced to look for more business-friendly environments to work in. This could not only lead to a loss of a massive talent pool in Web 3.0 and Block chain developers, but India could also lose out on advanced technological innovations that this sector has to offer and will offer in the future.
