Crypto, NFT Banning Can Be Effective Only After Global Collaboration: Finance Ministry

In a written response in Parliament on Monday Union Minister of State for Finance Pankaj Chaudhary said that any legislation for regulation or for banning cryptocurrencies and non-fungible tokens (NFTs) can be effective only after significant

international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards. "Cryptocurrencies are unregulated in India. Cryptocurrencies and Non-fungible Tokens (NFTs) are by definition borderless and require international collaboration to prevent regulatory arbitrage," the minister said. 

Last week, Finance Minister Nirmala Sitharaman also gave a similar statement in Parliament that a “global collaboration” would be needed to effectively ban cryptocurrencies and digital assets, which has sent positive signals to several stakeholders in the industry.

It effectively means that the government may not ban digital assets anytime soon. However, some experts maintain that the finance minister just stated a fact on the international nature of cryptocurrencies and the negative sentiments surrounding the digital assets.

In a reply to the consideration of crypto and Non-fungible Tokens (NFTs) as assets for the country from the government, the Finance Ministry said that the term ‘Crypto’ has not been defined in the Income-tax Act, 1961 (the Act). "However, through Finance Act, 2022, clause (47A) was inserted to section 2 of the Act to provide definition of virtual digital assets (VDA) to mean 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. Non-fungible token and any other token of similar nature are included in the definition," said the statement. 

Decoding the recent statement of the finance ministry, Purushottam Anand, founder and CEO of Crypto Legal, a law firm, said that the government’s answer regarding any plans to prohibit trading and possession of cryptocurrencies and NFT suggests that it is unlikely to ban cryptocurrencies in immediate future until a significant international collaboration is materialized. "Government has acknowledged the borderless character of VDAs and importance of international collaboration, which hints that India, unlike China, will not go ahead with banning VDAs in the country if the global regulatory sentiments happen to favour regulation over prohibition," he said.