India’s proposed crypto legislation, which seeks to ban the use of cryptocurrencies for payments, has also laid out stringent penalties for infractions, according to a draft of the crypto bill viewed by Reuters. The crypto bill has not been released to the public yet.
The bill is listed on the parliamentary agenda for the current winter session but has yet to be called for discussion. Last week, finance minister Nirmala Sitharaman said that the bill would be introduced after it receives approval from the union cabinet.
According to the Reuters report, the bill will impose a “general prohibition on all activities by any individual on mining, generating, holding, selling, (or) dealing” in virtual currencies as a “medium of exchange, store of value and a unit of account” — all characteristic of any legal tender.
Moreover, violating these rules will be treated as a “cognizable” offense, meaning that violators can be arrested without a warrant and held without bail. Other offenses categorized as cognizable crimes in India include murder, kidnapping and dowry death, among others.
But according to Rahul Gaitonde, a crypto investor and adviser to blockchain companies, the harsh ban on crypto should not come as a surprise since an earlier crypto ban bill draft from 2019 also recommended treating infractions as cognizable offenses. The “Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019” draft reportedly forms the backbone of the current bill.
A report by NDTV also citing the draft of the new bill said that crypto law infractions could lead to fines for individuals and companies of up to INR 200 million, or US$2.65 million. The penalties are especially steep for a country with an average salary of less than US$400 per month. The NDTV report further added that violators could receive jail time of up to 1.5 years but that the government would provide a cutoff date for current investors to declare their crypto assets and comply with the new law.
The Indian government is also planning to crack down on crypto advertisements, Reuters reported. The negative impact of crypto ads that some consider to be “misleading” was heavily discussed at the crypto meeting chaired by the prime minister as well as the first parliamentary meeting on crypto held last month.
The crypto bill draft reportedly also appoints the Securities and Exchange Board of India as the chief regulator of crypto assets and exchanges. Although this means that crypto exchanges will be regulated, the bill outlaws custodian wallets that allow users to store cryptocurrencies outside of exchanges.
The proposed new rules were designed in accordance with the concerns raised by India’s central bank, which has consistently called for a blanket ban on crypto. The draft bill also states that it aims to protect the traditional financial sector from cryptocurrencies and will put up safeguards to ensure it.
The proposed legislation could have a drastic impact on the entire blockchain ecosystem in India — which currently has an estimated 10 million crypto users.
“If no payments are allowed at all and an exception is not made for transaction fee then it will also effectively stop blockchain development and NFT” since transaction fees need to be paid with crypto, Anirudh Rastogi, founder of law firm Ikigai Law, told Reuters.
Gaitonde, the crypto investor and company advisor, said that the rules as outlined in the draft bill will allow people to buy and sell tokens but potentially exclude Indian investors from participating in the broader decentralized ledger technology ecosystem.
“If crypto regulations state that only licensed crypto exchanges can hold tokens, the universe of crypto projects available to people shrinks greatly because it is impractical for any such exchange to list tokens from every decentralized project,” Gaitonde said.
“Similarly, if regulations forbid the use of non-custodial wallets, then DeFi projects, NFT marketplaces, decentralized software or dApps, blockchain-based games and such innovations become inaccessible,” he added. This is because the decentralized world largely supports such wallets — which are used to swap NFTs and other artifacts with crypto tokens.
However, Gaitonde is still hopeful the final bill will allow more flexibility with cryptocurrencies since the government has held multiple consultations with industry experts and has expressed an interest in preserving innovation.