Can Parliamentary Panel's Latest Recommendations Break Crypto Policy Deadlock?
The Parliamentary Standing Committee on Finance has recommended an interim self-regulatory framework for the VDA sector and sought greater clarity on how digital assets should be classified under the proposed Securities Markets Code. Industry executives believe these reco…
Intelligence analysis by Llama
The Parliamentary Standing Committee on Finance has recommended an interim self-regulatory framework for the VDA sector and sought greater clarity on how digital assets should be classified under the proposed Securities Markets Code. Industry executives believe these recommendations signal Parliament's strongest acknowledgement yet of the regulatory vacuum surrounding India's crypto s…
Imagine you have a special kind of money that exists only on computers and phones. This money is called a cryptocurrency. In India, the government has been trying to figure out how to regulate this kind of money. A group of people who help make laws has made some recommendations that could help the government make a decision. These recommendations say that the government should create a special group to help make rules for this kind of money. This group would make sure that people who use this money are following the rules and that the money is safe.
Analysis
A Shift in Official Acknowledgement
The Parliamentary Standing Committee on Finance's recommendations on the proposed Securities Markets Code, 2025, have reignited hopes within the crypto industry that the policy conversation may finally be moving beyond taxing crypto transactions towards regulating the market itself. The committee has recommended creating an interim regulatory mechanism for virtual digital assets (VDAs) through a recognised self-regulatory organisation (SRO) operating under a designated regulator. It has also sought greater clarity on how crypto investment products and tokenised securities should be treated under the proposed law.
The recommendations do not change India's regulatory framework. But for many in the industry, they represent something equally significant: a parliamentary panel formally acknowledging that the sector continues to operate in a regulatory grey area. "It's an important signal, though not yet a shift in policy. It's a shift in official acknowledgement," Mudrex founder and CEO Edul Patel told Inc42.
According to Patel, the committee has, for the first time in a parliamentary document, recognised that excluding VDAs from India's securities framework has created a regulatory gap that needs to be addressed. India currently taxes income from VDAs at 30%, levies a 1% TDS on specified VDA transfers above prescribed thresholds, and requires crypto exchanges and other VDA service providers to register with the Financial Intelligence Unit-India (FIU-IND) under the Prevention of Money Laundering Act (PMLA) framework. However, the country is yet to introduce a comprehensive law governing the sector.
Who Should Regulate Crypto?
The committee's recommendations also revive another long-running debate: should all digital assets be regulated under one framework? Industry executives argue the answer is no. They contend that cryptocurrencies, stablecoins, tokenised securities and other blockchain-based assets perform fundamentally different economic functions and therefore should not be regulated together simply because they are built on similar technology.
"VDAs are not one asset class, and treating them as one is what created the current grey area," Patel said. He suggested broadly classifying digital assets into three buckets – tokenised securities and real-world assets such as equities, bonds and gold; payment-oriented assets such as stablecoins; and crypto-native assets such as Bitcoin and Ethereum. Under such a framework, tokenised securities could come under SEBI's jurisdiction, payment-oriented assets could fall within the RBI's remit, while crypto-native assets could be governed under a dedicated VDA framework supported by the proposed SRO.
A Push For Tokenised Assets
Beyond cryptocurrencies, industry executives believe the committee's recommendations could have implications for the tokenisation of traditional financial assets. Tokenisation involves representing ownership of assets such as equities, bonds, fund units or even property through blockchain-based digital tokens. The committee's emphasis on a technology-neutral Securities Markets Code suggests that a financial instrument should continue to be regulated according to its underlying characteristics, regardless of whether it exists on conventional market infrastructure or blockchain.
Manhar Garegat, India head at Liminal Custody, said this could remove a key ambiguity around tokenised securities. "A security can exist on distributed ledger technology or blockchain in the form of a digital asset and still qualify as a security, provided it satisfies the criteria laid down under the Code," Garegat said.
Sidharth Sogani Jain, founder, CEO and fund manager at Blue Aster Capital and CREBACO Global, further noted that tokenisation is increasingly being viewed globally as an evolution of financial market infrastructure rather than the creation of a new asset class. However, legal ownership, custody, settlement, investor protection, and market integrity would still need to be addressed before launching tokenised securities.
Key points
- The Parliamentary Standing Committee on Finance has recommended an interim self-regulatory framework for the VDA sector.
- The committee has sought greater clarity on how digital assets should be classified under the proposed Securities Markets Code.
- Industry executives believe the recommendations signal Parliament's strongest acknowledgement yet of the regulatory vacuum surrounding India's crypto sector.
- The committee's emphasis on a technology-neutral Securities Markets Code suggests that a financial instrument should continue to be regulated according to its underlying characteristics, regardless of whether it exists on conventional market infrastructure or blockchain.
The committee's recommendations could lay the groundwork for a broader regulatory framework for India's crypto sector, which could lead to increased investment and growth in the industry. Additionally, the emphasis on tokenisation could lead to the development of new financial instruments and products, which could benefit the economy.
The committee's recommendations may not lead to significant changes in the regulatory framework, and the industry may continue to operate in a grey area. Additionally, the emphasis on tokenisation could lead to increased complexity and risk in the financial system.
