Indian Government Urged to Restore UPI Payments for Cryptocurrency Exchanges
Summary
The Indian government has been urged to restore Unified Payments Interface (UPI) payments for cryptocurrency exchanges in order to facilitate the growth and success of the virtual digital asset (VDA) ecosystem. Currently, UPI platform providers have cut off service to crypto exchanges, making it impossible for investors to use UPI payments. Without access to payment rails like UPI, compliant Indian VDA investors have suffered financial losses and the lack of consistent payment mechanisms has caused operational difficulties for virtual asset service providers (VASPs).
Introduction
Initially ignored in India, cryptocurrency has gained widespread usage both internationally and in India, resulting in a change in the government’s attitude towards virtual digital assets (VDAs). The Indian government implemented large statutory mandates in 2022, including direct taxes at a rate of 30% and a tax deduction at source (TDS) of 1%. However, concerns remain regarding international exchanges operating outside Indian regulations, resulting in lower tax collections. To address these concerns, the government passed the Prevention of Money Laundering Act (PMLA), requiring cryptocurrency buyers and sellers to report their activities for tax and disclosure purposes. Additionally, the crypto industry is now required to implement know-your-customer (KYC) and enhanced due diligence (EDD) practices.
Main Points
Financial institutions have yet to collaborate with cryptocurrency exchanges to facilitate Indian Rupee (INR) conversions, creating challenges for the industry. The National Payments Corporation of India (NPCI) issued a circular in April 2022, stating their unawareness of any cryptocurrency payments using UPI. As a result, UPI platform providers discontinued services for crypto exchanges, leading to several exchanges shutting down banking integrations and preventing consumers from making financial transactions on these platforms. Although Coinbase discontinued UPI support in April 2022, some Indian cryptocurrency exchanges have resumed accepting deposits in rupees.
Indian MP Karti P. Chidambaram recently highlighted the challenges faced by the Web3 sector in integrating payment rails, specifically the denial of UPI usage for VDAs. Chidambaram emphasized the importance of strong payment mechanisms, such as UPI, for the growth and success of the VDA ecosystem. The lack of consistency in user payments has caused operational difficulties for VASPs, making it challenging to conduct VDA-related transactions without UPI. Additionally, the VDA ecosystem lacks access to widespread payment mechanisms like credit and debit cards due to inadequate connectivity with payment aggregators and gateways.
Conclusion
The absence of UPI payments for cryptocurrency exchanges in India has hindered the growth of the VDA ecosystem and caused financial losses for compliant investors. The lack of consistent payment mechanisms and inadequate banking infrastructure have created operational difficulties and hampered access to capital. Indian MP Karti P. Chidambaram has called on the government to restore UPI and payment services to address these issues and provide continuous and smooth services for the VDA industry. The Indian Finance Ministry is now under scrutiny to make the necessary changes to support India’s growth in the Web3 domain.