India has recently been one of the fastest-growing centres for expanding cryptocurrencies. Given that cryptocurrency, though still heavily debated, has become a part of everyday life and no longer a niche, exclusive concept it used to be, it is very useful to know the basics of cryptocurrency and the laws relating to it in India.
What is Cryptocurrency?
The word ‘cryptocurrency’ comes from its usage, as it uses encryption for security of the verification of transactions. It is a decentralized digital payment system that does not work through banks to verify transactions. Instead, it’s peer-to-peer system allows anyone to send or receive payments from anywhere. It also differs from physical currency to be a fully digitized entry in an online database. All transactions are recorded in a public ledger and the actual currency is kept in digital wallets. Unlike centralized currency such as rupee or dollar, the value of a cryptocurrency is actually mandated through the cryptocurrency users on a digital space itself. The first cryptocurrency to be introduced was Bitcoin, but numerous other platforms and tokens have come into existence for people to trade in. Even though it is a very widely attracting system, it has its own risks and problems which one should be well versed with before stepping into the market.
In India, it was first assumed that majority of the cryptocurrency users were from a niche section of the society, but it has since been found that it is now being traded all across the country, even small cities. This really gives perspective on the grip that India is under for cryptocurrency.
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Cryptocurrency Laws in India
There are no laws regulating cryptocurrency in India, but the Government has shown keen interest in coming up with a set of guidelines and laws to modulate the usage and trade of cryptocurrencies. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is still in the works. It permits restriction to promote the technology of cryptocurrencies and the use of the same. Nothing is concrete yet, but from the current sources one can get a outlined idea of what may or may not be allowed once this regulation comes into place.
The operation of these platforms will continue as it was with perhaps authorized regulations and guidelines. The Government has also hinted that the policy it is adapting with regards to cryptocurrency is leaning towards protecting the investors' money, but it might happen that cryptocurrency is classified as an asset than an actual mode of currency. Taxing cryptocurrency has already taken place, as it provides the government a way to generate revenue from the platforms.
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Is Cryptocurrencies Legal in India?
As stated above, India has become one of the fastest growing markets to use cryptocurrency, but it is still not regulated or authorised by the Government. There has been palpable ambiguity regarding the legal validity of cryptocurrencies in India. It is not illegal to trade in cryptocurrency in India, and neither has there been any explicit recognition from the government with regards to their prohibition. Using cryptocurrency as a fiat currency backed by the central government is not permitted in India. Legality of cryptocurrencies is still a slippery slope in India as no clear mandate exists regarding the same.
Recently a 30% tax was introduced on transactions about virtual digital assets. Cryptocurrency being a virtual digital asset would also be subject to this tax. Many surmised that this means that cryptocurrencies would be legalised in the future. However, the government has refuted such claims.
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Will Cryptocurrency be Banned in India?
Will the government ban cryptocurrencies, is another question that is often doing the rounds. In March 2020, the Supreme Court held in Internet and Mobile Association of India v. Reserve Bank of India that the earlier order of RBI banning cryptocurrencies was to be quashed. On the other hand, the government has begun drafting a bill to come up with cryptocurrencies laws, which seems like a green sign for cryptocurrency investors in India. Given that other developed countries are coming up with regulations and laws to govern and regulate cryptocurrencies, it seems that the Indian government may not ban cryptocurrencies. The future of cryptocurrencies is uncertain and the government may devise a middle path.