The Act will establish a regulatory framework for stablecoins.
- Stablecoins are a type of cryptocurrency whose value is linked to that of another currency, commodity, or financial instrument. E.g., Tether (USDT), is pegged to the US dollar
- They have the potential to bring efficiencies to payments.
How does Cryptocurrency work?
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Why has the use of Stablecoins increased?
- Linked to an underlying asset: Due to this, they can maintain a steadier value, making them a more reliable medium of exchange than other volatile cryptocurrencies like bitcoins.
- Underlying assets are backed by an identifiable issuer, unlike many unbacked crypto assets.
- Issuers could be banks, nonbank financial entities, and large technology conglomerates.
- Regulation: Decisions for stablecoin arrangements are usually taken by a governance body.
Regulation of Cryptocurrency or Cyrpto Assets in India
- Currently, Crypto Assets are unregulated in India.
- However, Government, through the Finance Act, 2022, brought a comprehensive taxation regime for the transfer of Virtual Digital Assets (VDAs).
- It imposed a 30% tax on capital gains from VDAs.
- The Income Tax Act 1961defines VDA as any information or code or number or token, generated through cryptographic means or otherwise, transferred, stored, or traded electronically. E.g., cryptocurrencies, Non-fungible token (NFT), etc.
- In 2023, VDAs were brought under the purview of the Prevention and Money-laundering Act, 2002.