Sources aware of the development said this move is a dampener for the industry, which is already battling market volatility and 1% TDS, which has affected the trading volumes.
"It is important that the government look at revising the guidelines to encourage entrepreneurship in the Web 3.0 sphere,” said Khaleelulla Baig, co-founder and CEO of Koinbasket.
"So, our intention is in no way to hurt this (innovation around crypto)... but (we need to) define for ourselves...," she said.
The set of Frequently Asked Questions (FAQ), which is being drafted by the Department of Economic Affairs (DEA), RBI and Revenue Department, would also be vetted by the law ministry.
Further, crypto investors would not be able to set-off losses in one crypto asset against the gains from another.
Ashish Singhal, Founder and CEO, CoinSwitch, posed the question to the finance minister saying leading nations are taking steps to regulate the cryptocurrency sector.