INDIA Law and Practice Contributed by: Shilpa Mankar Ahluwalia, Purva Anand and Ansh Jain, Shardul Amarchand Mangaldas & Co
10.6 Staking Provision of staking and lending services relating to cryptocurrencies or offering of crypto-derivatives is not governed by any separate regulation in India, though such services may attract the KYC and report - ing requirements applicable to VASPs (see 6.3 Impact of the Emergence of Cryptocurrency Exchanges ). Any income from such services/offerings will have a tax implication (see 10.11 Virtual Currencies ). 10.7 Crypto-Related Lending See 10.6 Staking . 10.8 Cryptocurrency Derivatives See 10.6 Staking . 10.9 Decentralised Finance (DeFi) India has not yet enacted specific guidelines to regulate DeFi. In the absence of specific guidelines, DeFi is cur - rently governed under the extant regulations on pay - ment systems, payment and investment intermediaries. 10.10 Regulation of Funds The current regulatory framework does not contem - plate blockchain assets. Funds investing in blockchain assets are therefore unregulated. 10.11 Virtual Currencies Owing to a lack of clarity on how to classify virtual currencies (they do not fall under securities, com - modities, currency, payment or security tokens), they remain excluded from most regulations. However, after the 2022 budget speech, the GOI declared vir - tual currencies to be taxed as a separate class called “virtual digital assets” (VDAs). All income from VDAs including cryptocurrencies is subject to 30% tax (plus cess) in India. The GOI also announced a tax deducted at source (TDS) of 1% on all cryptocurrency-based transactions. A gift of VDAs is also proposed to be taxed in the hands of the recipient. The RBI and the GOI exhibit a marked reluctance to acknowledge cryptocurrency as a legitimate form of currency in India. India is currently piloting the e₹, which is anticipated as a replacement for all privately owned cryptocurrencies in India after its launch.
10.12 NFTs The regulatory landscape surrounding NFTs is unclear. However, NFTs have recently been recognised as a subclass of VDAs and subject to the same taxation regime. 10.13 Stablecoins In India, there is no separate framework for stable - coins, and stablecoins are regulatorily treated as VDAs. See 10.11 Virtual Currencies . While there are no regulatory norms that apply to stablecoins (eg, governing minimum asset backing or redemption rights), certain service providers deal - ing with stablecoins can be classified as VASPs and will be required to comply with PMLA and the FIU- Ind guidelines. See 6.3 Impact of the Emergence of Cryptocurrency Exchanges . India has adopted a distinctive approach to open banking. It has created a comprehensive DPI and associated standards, collectively known as the “India Stack”. The India Stack has been developed in layers over the past decade, with a proactive role played by regula - tors. Identity Layer The Aadhar digital identity system facilitates iden - tity verification and tracing of individuals’ particulars across various datasets. The RBI has mandated Aad - har-interlinked KYC practices for all REs through the KYC Master Direction. Payments Layer 11. Open Banking 11.1 Regulation of Open Banking UPI, Aadhaar-enabled Payment System, and Aadhar Payments Bridge create a fully interoperable payment system that is subject to the supervision of the NPCI. Documents Layer “Digilocker” is a cloud-based platform that enables registered governmental authorities to issue and citi -
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