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Any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions 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 can be transferred, stored or traded electronically;
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A non-fungible token or any other token of similar nature, by whatever name called;
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Any other digital asset, as the Central Government may, by notification in the Official Gazette specify
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A method of payment
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A tradeable asset
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Initial coin offerings
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Crypto-asset funds and derivatives
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Crypto-asset-related services
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Benefits of crypto-assets as a currency and asset:
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Decentralised and verifiable transactions
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Reduced transaction costs
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Confidentiality
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Security
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Easier cross-border transactions
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A potential tool for financial inclusion
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As a tool for verifying asset ownership
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Limitations of crypto-assets as a currency and asset:
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High environmental costs
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Replaces traditional transaction costs with new costs
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A few actors dominate mining
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Cannot replace traditional money
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Introduces challenges in implementing monetary policies
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Lack of network externalities
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The limited actual impact on financial inclusion
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Use for illegal activities
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Prone to schemes and scams
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European Union
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El Salvador
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United States
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United Kingdom
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Japan
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Venezuela
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South Africa
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Singapore
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Indonesia
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Switzerland
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China
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Immediate/ Short Term Measures
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Steering clear of bans private crypto-assets
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Recommend that regulatory bodies use their ad-hoc power to exercise interim oversight
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Long Term Measures
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Specific Regulatory Framework
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Identify clear definitions
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Limit the scope of regulations to crypto-assets rather than their underlying technologies
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Introduce a licensing and registration system
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Make provisions for handling environmental concerns
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Consumer protection measures
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Taking measures to limit the impact of crypto-asset volatility on the wider financial market
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Extending Anti Money Laundering/ Counter Financing of Terrorism norms and exchange control regulations
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Create an oversight body
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Taxation
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Stablecoin Specific Regulation
Internet Researchers' Conference 2022
Due to internal delays related to the pandemic, the Internet Researchers' Conference will now take place online in May 2022. Please see below for a link to the updated call for sessions.
Notes for India as the digital trade juggernaut rolls on
Sitting out trade negotiations could result in the country losing out on opportunities to shape the rules.
Submission to the Facebook Oversight Board: Policy on Cross-checks
The Centre for Internet & Society (CIS) submitted public comments to the Facebook Oversight Board on a policy consultation.
What does the 2022 Finance Bill mean for crypto-assets in India?
The recent budget speech saw the Finance Minister propose a slew of measures that seek to clarify the taxation regime with regards to crypto-assets in India. The speech, and the proposed measures, have led to significant discussion and debate within the domestic crypto-ecosystem as questions continue to be raised about the ambiguous legality of crypto-assets in the absence of any dedicated crypto legislation. In the face of this uncertainty, this blog post looks to contextualise the proposals put forth by the Finance Minister in her speech and clarify what they mean for crypto-asset regulation and use in India.
Crypto-assets defined as a virtual digital asset and taxed at 30%
The 2022 Finance Bill, introduces the definition of a ‘virtual digital asset’ as an amendment to the 1961 Income Tax Act. The government defines a virtual digital asset as:
Furthermore, the bill also introduces section 115BBH to the Income Tax Act, according to which income or profits generated from the transfer of ‘virtual digital assets’ would be taxed at the rate of 30%. The Finance Minister further clarified that any expenses incurred in carrying out such trades cannot be set-off or deducted from the profits generated, except the amount spent on buying the crypto-asset in the first place. Further in case of losses incurred from crypto-asset trading, such losses cannot be carried over to subsequent financial years.
While this clarification of the provisions relating to crypto-assets under the Income Tax Act, 1961 drew much attention for their potential impact, it is important to note that this measure is far from a departure from the government’s pre-existing stance. In responses to parliamentary questions on 30th November 2021 and 23rd March 2021, the Minister of Finance has repeatedly stressed the liability to pay taxes on any profits arising out of crypto trading under Indian tax law.
The budget speech merely clarified the provisions under which profits from crypto trading shall be taxed. Prior to this, there had been a fair amount of debate as to whether profits from crypto trading would be included as part of the regular income, income from other sources, or if they would be taxed as capital gains. This distinction and categorisation was critical as it determined the rate of tax applicable to crypto profits. However with the proposed section 115BBH, the government has made the taxation regime clearer on how these profits are to be taxed.
Introduction of TDS onto crypto-asset transactions and transfers
Another provision that this budget has proposed is the introduction of a 1% TDS (Tax Deducted at Source) on any transfer of a crypto-asset, provided that other conditions in relation to aggregate sales specified in the proposed section 194-S are satisfied. It must be noted that this TDS shall be payable not only on cash transfers, but even on trades where one cryptocurrency has been traded for another cryptocurrency. Thus trades where Bitcoin is bought using Tether would also be liable to such TDS deduction. Interestingly, the way the provision is currently drafted, if any person accepts payment for any goods or services in cryptocurrency, then such a person would be liable to pay TDS at 1%. This is because the Income Tax Act treats the cryptocurrency as the asset being bought or sold and treats the good or service being provided by the “seller” as the consideration. Thus instead of it being looked at as a transaction where one person is paying for something by using cryptocurrency, it is looked at as a transaction where the other person is buying the cryptocurrency and paying for it in kind (through the goods or services of the “seller”).
Questions of enforcement still remain
While these measures do bring a certain level of clarity and stability in the taxation regime with regard to crypto-assets, one still needs to grapple with the issue of their implementation. News reports suggest that about 15-20 percent of the investors in crypto assets are in the 18-20 year age group. A number of such investors do not file tax returns since they are mainly students investing their extra savings or “pocket money” to make a quick profit. Ensuring that this demographic actually follows the letter of the law may be a challenge for the revenue authorities and it would be interesting to see how they overcome it.
To be Counted When They Count You: Words of Caution for the Gender Data Revolution
In 2015, after the announcement of the SDGs or Sustainable Development Goals, a new global developmental framework through the year 2030, the United Nations described data as the “lifeblood of decision-making and the raw material for accountability” for the purpose of realizing these developmental goals. This curious yet key link between these new developmental goals and the use of quantitative data for agenda setting invited a flurry of big data-led initiatives such as but not limited to Data2X, that sought to further strengthen and solidify the relationship between ‘Big Development’ and ‘Big Data.’
Report on Regulation of Private Crypto-assets in India
Link to Annex 1: Excerpts from the public consultation comments received from Ripple
EXECUTIVE SUMMARY
As of May 2021, the crypto-asset market in India stood at USD 6.6 billion. With no signs of slowing down, crypto-assets have become an undeniable part of both Indian and global financial markets. In the face of this rapid growth, policymakers are faced with the critical task of developing a regulatory framework to govern private crypto-assets.
This report is an introductory resource for those who are looking to engage with the development of such a framework. It first provides an overview of the technical underpinnings of crypto-assets, their history, and their proposed use cases. It then examines how they fit within India’s current legislative and regulatory framework before the introduction of a dedicated crypto-asset law and how the government and its institutions have viewed crypto-assets so far. We present arguments for and against the adoption of private crypto-assets and compare the experiences of 11 other countries and jurisdictions. Finally, we offer specific and actionable recommendations to help policymakers develop a cohesive regulatory framework.
What are crypto-assets?
At their core, cryptocurrencies (CCs) or virtual currencies (VCs) are virtual monetary systems consisting of intangible ‘coins’ that use blockchain technology and serve a multitude of functions. While the word ‘cryptocurrency’ is often used as an umbrella term to describe various assets within the crypto-market, we note that these assets do not all share the same characteristics and often serve different functions. Therefore, for the purposes of this report, we use the term ‘crypto-assets’ rather than ‘cryptocurrencies’ when discussing the broad range of technologies within the crypto-marketplace.
Crypto-assets utilize a distributed ledger technology (DLT) known as blockchain technology. A blockchain is a complete ledger of all recorded transactions, which is created by combining individual blocks, each of which stores some information and is secured by a hash. Blockchain, by the very nature of its architecture, can be used to ensure decentralisation, authenticity, persistence, anonymity, and auditability.
History and proposed uses of crypto-assets
While other forms of crypto-assets have been proposed in the past, the modern conception of one can be traced to a research paper published under the pseudonym, Satoshi Nakamoto, which first proposed the idea of bitcoin. Bitcoin, as it was presented, seemingly solved the ‘double spending’ problem by utilising a form of DLT known as blockchain. Bitcoin, which was first operationalised on 3 January 2009, has since become the dominant crypto-asset globally – trading at over USD 57,000 per bitcoin.
Following the popularity of bitcoin, several alternatives (known as alt coins) were launched, the most popular of which is ethereum. According to CoinMarketCap, as of April 2021, there are over 9,500 traded cryptocurrencies in existence, with a total market capitalisation of over USD 2 trillion. The rise of bitcoin and other crypto-assets also led to the emergence of crypto-exchanges such as Binance. These exchanges act as platforms for users to buy, sell, and trade crypto-assets.
Many potential use cases for crypto-assets have been identified, including:
Legal frameworks and private crypto-assets in India
While crypto-assets are also referred to as virtual currencies and cryptocurrencies, they do not currently satisfy the legal requirements to be considered as currency under Indian law. Although they have not yet been classified as a financial instrument, it is possible, through executive action, to include them within the definition of any of the following instruments: currency, foreign currency, derivative, collective investment scheme, or payment system. Such a move would give the government a legal basis to regulate the hitherto unregulated crypto-asset market, thereby bringing about much-needed stability and minimising the risk of fraudulent practices.
Understanding the case for private crypto-assets
This report examines both the benefits and limitations of crypto-assets across a number of their use cases.
International Perspectives
In order to draw inferences and lessons from a multitude of perspectives, we examined the regulatory frameworks governing private crypto-assets in the following jurisdictions:
Recommendations
Keeping in mind the benefits and limitations, as well as the experiences of countries around the world, we recommend the following measures to develop an appropriate regulatory framework in India. We have divided our recommendations into 2 types: immediate or short term measures and longer term measures.
Earlier, regulatory bodies made calls to ban private crypto-assets, but this resulted in crypto-assets being assimilated into the unregulated black market, thereby stifling potential innovation. To that end we recommend avoiding a ban, and adopting a regulatory approach instead.
During the interim period, prior to the adoption of a dedicated crypto-asset legislation, crypto-assets could be included under one of the existing financial instrument categories. The regulations governing them would apply to both cryptocurrency exchanges as well as vendors who accept payments in cryptocurrencies.
There needs to be an independent regulatory framework specific to crypto-assets since the unique features of crypto-assets make them unsuitable to be regulated through the existing regulatory frameworks.
Policymakers should adopt a definition of crypto-assets that includes entities that have emerged within the crypto space but which cannot be classified as ‘currencies’. They must also categorise and define these various entities as well as crypto-asset service providers.
Any proposed regulation must differentiate between the assets themselves and the technology underlying them. This would ensure that crypto-assets are not defined by the technology they currently use (i.e., DLT and blockchain) but by the purpose they serve.
A licensing system, similar to those adopted in other jurisdictions such as the EU or New York, can be adopted to ensure that the state is able to effectively monitor crypto-related activities.
A dedicated taxation programme and strict limitations on mining can minimise the environmental costs associated with crypto-assets.
Any potential licensing system must include mandatory obligations for crypto-asset service providers that ensure that consumer rights are protected.
Governments must take measures to ensure that the volatility of crypto-markets does not have a significant knock-on effect on the wider financial market. Such steps can include limiting financial institution holdings and dealings in crypto-assets.
Given the anonymous nature of crypto-assets and their potential for use in illegal activities, we recommend ensuring that crypto-specific anti-money laundering, prohibition of terror financing and foreign exchange management rules are introduced.
Subject to the availability of resources, the government might consider establishing a dedicated body to oversee and research changes in the crypto-marketplace and make appropriate suggestions to the concerned regulatory authorities.
The existing uncertainty with regard to the correct tax provisions to be applied for various transactions when dealing with crypto-assets needs to be clarified with specific amendments to the tax provisions.
Given the specific position occupied by stablecoins, and the unique role that they perform in the crypto-ecosystem, any legislation that seeks to regulate private crypto-assets must focus heavily on them. To that end, policymakers should pay special attention to identifying the various entities associated with stablecoins, applying greater regulatory scrutiny onto those entities and taking steps to limit the risk that stablecoins pose to the wider financial system.
Note
Locating Migrants in India’s Gig Economy: A Scoping Report
Gig workers working for on-demand platform services have been adversely impacted by the Covid-19 pandemic.
Call for respondents: the implementation of government-ordered censorship
The Centre for Internet and Society is conducting interviews with people whose content has been affected by blocking orders from the Indian Government.
Opinion: Delicensing 6 GHz, 60 GHz bands is crucial to improve Wi-Fi scenario in India
Recently, there has been growing demand from industry bodies and associations to delicense 6 GHz and 60 GHz bands in India.
Online caste-hate speech: Pervasive discrimination and humiliation on social media
A research report on the contours of online caste-hate speech and how social media platforms moderate such expression.
Gram Panchayat Development Plan (GPDP): An Opportunity for Funding Rural Internet Connectivity in India
A paper titled "Gram Panchayat Development Plan (GPDP): An Opportunity for Funding Rural Internet Connectivity in India" authored by CIS' researcher Abhishek Raj got published in the book "Community Networks: Towards Sustainable Funding Models". This book was released at the United Nations Internet Governance Forum(IGF) 2021, and is also the official outcome of the IGF Dynamic Coalition on Community Connectivity (DC3).
Covid-19 and Platform Work: Reflections on Institutional Policy Responses
The impact of Covid-19 on labor and employment has been profound. The nature of the pandemic and combative public health measures, including lockdowns and constraints on mobility, had unique implications for different sectors of the economy. Informal workers, who constitute 80% of the total employed workers in India (over 90% in the urban economy), emerged as most vulnerable. Informal workers’ vulnerability is caused by their historically exploitative working conditions and persistent exclusion from protective legislations and social security systems. Similarly, workers engaged by digital labor platforms, who are rapidly constituting a new precariat in urban India, faced widespread loss of livelihood and erosion of rights during the pandemic.
Read the full report here.
A Civil Society Agenda for E-Shram
On August 26, 2021, the Union Minister for Labour and Employment launched e-Shram, a national database portal for the targeted delivery of social security entitlements to India’s unorganized workers. Despite constituting over 93% of India’s workforce, unorganized workers have been left out of social protection nets. This category of workers, including platform and migrant workers, also face innumerable employment-related vulnerabilities in urban settings, which have been heightened in recent times by the economic shocks of the Covid-19 pandemic.
As an initiative that seeks to tackle the deep precarity and dearth of protection for unorganized workers, e- Shram is a welcome step. Just three months after the launch of the portal, close to 10 crore unorganized workers have registered as per official statistics.1 However, the experiences of unions and workers’ organizations on the ground have been marred by glitches in its technical infrastructure,2 a stark digital divide and limited digital literacy.3 The digital delivery of welfare also invites legitimate scrutiny about workers’ privacy and data rights.
In a strategy meeting held on September 29, 2021, the Centre for Internet and Society (CIS) and IT for Change sought to enable a dialogue among trade union representatives, researchers, practitioners working on informal sector issues, and digital rights activists on their experiences with using the portal, along with the impediments they and their constituents have faced during this process. The list of participants is enclosed in Annexure 1.
Many of the issues discussed at the meeting continue to affect the efficiency of the roll-out of e-Shram. Therefore, this report, in addition to crystallizing discussions at the meeting, highlights challenges that actors on the ground have faced, and proceeds to outline a broad set of recommendations from civil society organizations for the Ministry of Labour and Employment, Government of India, on how to strengthen the design and implementation of the e-Shram portal.
Click here to read the full report.
Launching CIS’s Flagship Report on Private Crypto-Assets
The Centre for Internet & Society is launching its flagship report on regulating private crypto-assets in India, as part of its newly formed Financial Technology (or Fintech) research agenda. The event will be held on Zoom, at 17:30 IST on Wednesday, 15th December, 2021
Gender and gig work: Perspectives from domestic work in India
Platforms have the potential to be instrumental in protecting workers rights, but the current platform design is not optimised to protect workers’ interests especially those of women in the gig economy, argues Ambika Tandon, a senior researcher at the Centre for Internet and Society in India and an author of the report on ‘Platforms, Power and Politics: Perspectives from Domestic and Care Work in India’.
AI in the Future of Work
Artificial Intelligence and allied technologies form part of what is being called the fourth Industrial Revolution.
Practicing Feminist Principles
AI can serve to challenge social inequality and dismantle structures of power.
Are India’s much-lauded startups failing their women workers?
Recent protests outside Urban Company’s head office highlight the gendered nature of work in the country’s digital economy.
Between Platform and Pandemic: Migrants in India's Gig Economy
In response to the rising number of COVID-19 cases in India, the central government announced a nationwide lockdown in March 2020.
Who Funds Us
CIS is able to conduct its research only through the support of both long term, and short term donors, who are also acknowledged throughout our website on the publications they support. Below is a list of past donors across the years who have supported us.
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