RBI opposes crypto legalisation, warns of terror financing, narcotics risks

The Reserve Bank of India (RBI) has reiterated its strong opposition to legalising virtual digital assets (VDAs) such as cryptocurrencies, telling a parliamentary panel that they pose a threat to an emerging economy like India.

During a meeting of the Parliamentary Standing Committee on Finance on Thursday, RBI officials said VDAs should not be legalised in India at this stage, arguing that they could be misused for terror financing, narcotics smuggling and other unlawful activities, reported PTI.

The central bank also flagged the difficulty in monitoring offshore entities involved in crypto transactions, making effective regulation and enforcement a major challenge.

The committee, headed by BJP MP Bhartruhari Mahtab, examined the subject "A Study on Virtual Digital Assets (VDAs) and Way Forward" and heard the RBI's assessment of cryptocurrencies and other digital assets.

According to PTI, the RBI told the panel that countries have adopted different approaches towards crypto assets. While China and Qatar have imposed bans on such activities, Europe has permitted them under a stringent regulatory framework.

The RBI has consistently maintained that private cryptocurrencies could undermine financial stability and monetary policy transmission. It, however, backs the development of the central bank digital currency (CBDC), or the digital rupee, which is issued and regulated by the central bank.

After the meeting, Mahtab told reporters that the RBI is against legalising VDAs in India.

He also said the committee discussed the existing taxation framework for VDAs under the Income Tax Act.

The panel also heard the views of the Institute of Chartered Accountants of India (ICAI), which supported the enactment of a comprehensive legal framework for virtual digital assets.

The ICAI told the committee it could assist policymakers by developing a principle-based framework to improve accounting, auditing and financial reporting standards for VDAs.

"Accounting and Auditing for VDAs ICAI can undertake comprehensive research on the various forms of VDAs and analyse their economic characteristics. Based on such research, ICAI may develop detailed guidance on their recognition, measurement, presentation, and disclosure in financial statements," the institute said.

The accounting body also highlighted the need for greater clarity in disclosure norms and compliance requirements for businesses and individuals dealing in digital assets.

The ICAI has been working on guidance for VDA-related accounting and audit issues since the government introduced a 30 per cent tax on gains from VDAs and a 1 per cent tax deducted at source (TDS) on transfers in 2022.

India currently taxes income from virtual digital assets but does not have a comprehensive law governing cryptocurrency trading, exchanges or investor protection.

The Parliamentary Standing Committee on Finance examines policies and legislation relating to the Finance Ministry, the RBI, SEBI, banks, insurance and taxation.