The crypto industry in India has been growing at a tremendous pace in the past few years, with the Bitcoin hitting an all time high. Cryptocurrencies and non-fungible tokens (NFT), which are forms of virtual currency and are based on blockchain/other distributed ledger technologies, are yet to be regulated by the central government and the Reserve Bank of India (RBI). Thus, at present, there are neither any rules nor is there any ban on the use of cryptocurrencies in the country. In that sense, cryptocurrency is like any other asset, such as for example- gold or bond. The Order by the RBI banning banks from supporting crypto transactions was reversed by the Supreme Court Order of March, 2020 (Internet and Mobile Association of India V. Reserve Bank of India, WP No.528 of 2018).

The RBI considers the cryptocurrency as a risk to rupee, having the capability of weakening the Indian economy and ruining government attempts at crackdown on unlawful flow of money for illegal and illegitimate activities. Further, since such virtual currencies based on blockchain technology are exceptionally secure, it makes it extremely tough to track down the inception of a transaction. This in turn increases the possibilities of the virtual currencies being used for banned and forbidden pursuits.

In this regard, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is being introduced to bring a sense of clarity and uniformity as to how the cryptocurrency exchanges would take place and prevent any misapplication, exploitation or abuse of virtual currency. The Bill inter alia  seeks to "prohibit all private cryptocurrencies in India" but "allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses".

Although the above-stated Bill is yet to see the light of the day, owing to the immensity of such virtual transactions the government has provided some lucidity on taxation of transactions in Virtual Digital Assets (VDA) by announcing in the Budget 2022 a 30 per cent tax on income from VDAs, in other words, the cryptos and NFTs. The Finance Bill has defined VDA in the newly-inserted clause (47A) under Section 2 of the Income Tax Act, 1961 as any information or code or number or token (not being Indian currency or foreign currency):

  • generated through cryptographic means or otherwise;
  • providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value;
  • functioning as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and
  • which can be transferred, stored or traded electronically.

The government has also proposed a Tax Deduction at Source (TDS) on payment made in relation to the transfer of VDAs at 1 per cent above a monetary threshold. Further, gifting of such VDAs is also suggested to be taxed at the hands of the beneficiary.

It is to be noted that at present, the crypto products and NFTs are not a legal tender in India and therefore such virtual currencies do not fall within the realm of regulatory protection. Thus, there is a definite amount of risk involved as there is no legal assurance of security of the invested amount, not to mention the heightened probability of hacking, loss of password and the like in such online transactions.

In such a scenario, the voluntary self-regulatory organization of the advertising industry in India- the Advertising Standards Council of India (ASCI) has recently issued a 12-point guideline for protection of the interests of the consumers/investors from the imminent dangers arising from such forms of trading and investment, and from the misleading and credulous advertisements which often use celebrities to attract and lure gullible customers without fully disclosing the risks involved. These guidelines will be applicable to all advertisements released or published on or after April 01, 2022, including the earlier advertisements from April 15, 2022.

As per the guidelines, all advertisements for VDA products/exchanges or featuring VDAs must necessarily carry the following disclaimer: "Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions." which is prominent and unmissable by an average consumer. The guidelines further define how the disclaimer is to appear in print, video, and audio format as well as social media posts and stories. It is directed that the words such as "currency", "securities", "custodian" and "depositories" may not be used in such advertisements. The guidelines require providing clear, accurate, sufficient and updated information on the cost/profitability of VDA products; clearly giving out the name and contact details of the advertiser; not showing minors in dealing with/talking about such products; not showing that the VDA products or trading could be a solution to money problems; not downplaying the associated risks; and the like.

It is therefore hoped that more of such rules and regulations will bring in greater clarity and transparency to the existing status of crypto industry and also play a principal role in safeguarding the interests of the investors, thereby deciding the future of cryptocurrency in India. 

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