According to sources with knowledge of the matter, India is considering assigning its capital markets regulator to monitor cryptocurrencies as officials seek to classify them as financial assets.

The government of Prime Minister Narendra Modi, which plans to introduce legislation in the current parliament session, will most likely give crypto holders a deadline to declare their assets and comply with any new rules, according to the sources. One of the sources said that the bill would likely use the term 'cryptoassets' rather than 'cryptocurrencies,' and will not mention the central bank's plan to develop its own digital currency.

India's cryptocurrency traders scramble after RBI crackdown | Financial  Times

According to the proposals, violators might face fines of up to 200 million rupees ($2.7 million) or a 1.5-year prison sentence. It was previously reported that the government may explore setting a minimum investment threshold for crypto assets to protect small investors.

Last week, Finance Minister Nirmala Sitharaman said the government has modified an earlier bill that proposed banning all private cryptocurrencies to take into account recent developments. She went on to say that there was no proposal to recognise Bitcoin as a currency in the country.

A report released in October by Chainalysis, a crypto-analysis business, showed that the crypto market in India grew 641% in the year leading up to June 2021. Due to the unregulated structure of the business, the government is considering taxing gains from digital currencies, and there have been proposals to set stricter rules for transactions in virtual money.

Modi had a review meeting on digital currency earlier this month, during which he discussed how unregulated crypto markets cannot be allowed to become avenues for money laundering and terror financing.