Introduction
Indian central authorities have been proactive regarding crypto regulations from the start of the year. Just as the Indian crypto audience was getting over taxation concerns, the Indian IT ministry has placed new directives for crypto exchanges. The new directive makes crypto exchanges, virtual private networks (VPN) providers and data centres liable to store a wide range of user data for upto five years.
Need for Collecting User Data
The directive requires the crypto exchanges operating in India to store customers’ names, ownership patterns, contact information, and other details. Additionally, in case of any cyber incident, crypto exchanges and VPN service providers are required to report it within six hours of the occurrence and must hand over the collected data to the related authorities. The directives will come into force from June 22, 2022.
The overall action by the authorities might create privacy concerns for Indian crypto users. However, the Indian Computer Emergency Response Team (CERT-in) has claimed that the directives placed are intended to take relevant actions against cybercrimes within six hours. The directives didn’t specify whether the new rules would be applicable to foreign exchanges offering their services in India.
Existing & Anticipated Tax Concerns
Indian crypto users weren’t quite able to get over with introduction of the 30% tax rule on crypto gains, while the directives concerning user privacy are placed overhead. The implication of new tax rules resulted in a steep decline in the volume traded among Indian crypto exchanges. Furthermore, the government is anticipated to introduce taxes for DeFi transactions by imposing 20% TDS. However, with the degree of anonymity of DeFi transactions, the oversight infrastructure for financial watchdogs might be missing.
Bottom Line: Regulators Taking Over
The involvement of financial regulators in blockchain and cryptocurrency has significantly increased from the start of the year. Besides heavy taxation and data storage requirements, the Finance Ministry has shown keen interest in blockchain implementation and CBDC. This year, Nirmala Sitharaman announced that the RBI would issue the CBDC in the coming fiscal year during the Budget speech. However, her public opinion on cryptocurrency remains sceptical, given the money laundering and terror financing history of crypto.
Overall, it might take some time for both industry participants and financial regulators to find the right balance. While the tax percentage might be haunting for some investors, the other type is relieved by the fact that crypto got recognized as a financial asset in an indirect sense atleast.
