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India's Stance on Cryptocurrency Legality: An Analysis

30 Sep 2022 By : Sudeep Saxena
Southeast Asia’s Lar

Key Takeaways

  • FATF or Financial Action Task Force is an intergovernmental regulatory body created to counter cross-border terror funding and money laundering

  • Failing a FATF audit could easily cut off a country from the global trade

  • Crypto regulations are requested by the countries that could enable the FATF to trace back blockchain transactions

  • The Indian government is going to declare its clear stance on the legality of cryptos by the first quarter of 2023

Indian investors have been expecting precise crypto regulation from the governments for a long time. The rising investments in cryptocurrencies and increasing adoption of blockchain tech are making it an extreme need of the hour. 

The Indian government has been hesitant in drafting a regulatory framework for the virtual crypto assets citing them as uncertain and treading the crypto road with extreme caution. 

However, The Financial Action Task Force has requested nations to frame clear rules of operation for crypto trades and take required actions to maintain sufficient transparency. 

In this article, we are going to examine the FATF’s aims with crypto regulation and how India is contributing to the formation of a global consensus. We will also briefly discuss the impacts of a possible regulation on Indian crypto investors.

What Does FATF Want?

FATF or Financial Action Task Force is an intergovernmental regulatory body, created to counter cross-border terror funding and money laundering. This organization rates the countries on the basis of the measures they take to choke terror funding and other illegal transactions. Failing a FATF audit could easily be counted as a scary dream for a country’s financial health as it can cut it off from global trade

FATF has recently introduced its new norms regarding cryptocurrencies according to which the cryptocurrencies will also have to follow the travel rule. The travel rule symbolizes the details of a transaction which include the details from where the fund is being originated and to where it is being transferred.

FATF wants countries to take evident actions to enforce this regulation and assist FATF in tracing back illegal funding activities. In line with the same, FATF has given a deadline of May 2023 to India and requested the government to draft clear regulations around the mentioned norms.   

India’s Response to Crypto Regulation

India has promptly responded to contribute to creating a global consensus around crypto regulation. From time to time, Indian representatives have invited the formation of universally feasible crypto regulations on global stages. This initiation from the FATF is welcomed by the Indian authorities, hoping for the development of a global crypto consensus. 

The Indian government is going to declare its clear stance on the legality of cryptos by the first quarter of 2023. Presently we are witnessing a ‘blockchain but not crypto’ attitude from the ruling side which might change after the introduction of the first crypto regulation in the country.  

India has to respond to FATF by May of next year and to achieve these ministries have already started collaborating to forge a comprehensive stance of the state. 

Is Regulation a Threat to Crypto Investors?

Cryptocurrencies are identified as being decentralized and permissionless. Contrary to that, FATF regulations are bound to compromise the privacy of the blockchains by forcing a travel route on their operation. This might sound like a negative impact of the crypto regulation but this has more good to offer than compromising its security. 

Transparent crypto regulation is more likely to increase the security compliance for crypto vendors in the nation and ensure the government’s answerability to your crypto assets. As crypto tracing would be possible through a specified framework, it will become easier for investigative agencies to act on terror-funding and money laundering activities. 

This FATF regulation will also assist the nations to create a common global consensus with pre-defined norms. And this global consensus will eventually lead the crypto markets towards a more stable, secure, and legitimized future. 

The Future of Crypto in India

Indian crypto investments are constantly on the rise since it has become accessible to the masses. The increasing popularity and great returns in its bull run have made crypto investments a fascinating option for Indian investors. 

However, the recent tax slab introduced for the profits on virtual digital currencies has given a major setback to the industry. A 30% taxation on crypto gains along with 1% of TDS is acting as a shadow ban for crypto investors and restricting the Indian liquid flow in the markets. 

However, a specific crypto regulatory framework will enable the right awareness and a prospering community around cryptocurrencies. India is yet to uncap its true crypto potential and could emerge as a world leader in the Web 3.0 space

Cryptocurrencies might be going through a lasting winter but the sunshine is awaited and we are sure that it will be brighter than ever before. With the right regulation, India will contribute to global blockchain adoption and become a key player in the upcoming future.


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