Is Cryptocurrency Legal in India? A Comprehensive Overview in 2023
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Is Cryptocurrency Legal in India? A Comprehensive Overview in 2023

Cryptocurrencies, like Bitcoin, have seen a lot of changes in rules and how people view them all over the world. India is one of the countries trying to figure out what to do about these digital currencies. Since India has a lot of people, and many of them are getting more into technology, what India decides about cryptocurrency is a big deal. So, the big question is: Is it okay to use cryptocurrencies in India? Let's explore this more

 

A Glimpse of the Past of Cryptocurrency

Historically, India's approach to cryptocurrency has been one of caution. The Reserve Bank of India (RBI), the nation's central banking institution, had expressed reservations about the decentralized nature of cryptocurrencies. Citing concerns related to consumer protection, market integrity, and money laundering, the RBI, in April 2018, prohibited banks and financial institutions from providing services related to cryptocurrencies.

This move led to a significant decline in cryptocurrency-related activities in India. However, it was met with challenges. Many crypto enthusiasts and businesses approached the judiciary, questioning the central bank's decision.

 

The Turnaround

In March 2020, the Supreme Court of India lifted the ban imposed by the RBI, citing the proportionality of the restrictions. The decision was seen as a victory for the Indian crypto community. Post this judgment, cryptocurrency trading platforms witnessed a surge in user registration and trading volumes.

It's also noteworthy that India has been gradually introducing measures to regulate cryptocurrency revenues. In April 2022, a 30% income tax was levied on profits derived from cryptocurrencies. This was followed by the implementation of a 1% tax deducted at source on cryptocurrency transactions in July 2022.

On the March 7, 2023, the Central Government issued a notification, effectively placing digital assets, including cryptocurrencies, under the purview of the Prevention of Money Laundering Act (PMLA). This move signaled India's intent to tighten its grip on the regulation of digital currencies. The Finance Ministry further elucidated that any exchange involving digital assets and fiat currencies, or between different forms of digital assets, would now be subject to the stipulations of the PMLA.

 

Understanding Cryptocurrency's Legal Status in India

Legal tender is like official money that the government accepts. If you have legal tender, you can use it to pay for things and also pay off any debts. In many countries, the money you use daily, like rupees or dollars, is legal tender because it's backed by the government.

Now, let's talk about cryptocurrencies like Bitcoin in India. Even though many people in India buy, sell, and use cryptocurrencies for different things, these digital currencies aren't considered legal tender. This means you can't use them everywhere like you'd use rupees, especially when it comes to official matters or paying off debts.However, just because it's not "official money" doesn't mean the government ignores it. They know that these digital currencies are becoming more popular both in India and around the world. So, they've decided to put a tax on it. In 2022, the government said they would charge a 30% tax on money people make from cryptocurrencies.

But even with this tax, there aren't clear rules about how cryptocurrencies should work in India. Everyone who uses them is waiting for the government to give more clear guidelines about how to buy, sell, and use these digital coins safely and legally.

 

Regulatory Framework for Cryptocurrency

Although the Supreme Court lifted the RBI's ban, it emphasized the need for robust regulations. Recognizing the potential risks and benefits, the Indian government has been considering introducing a comprehensive legal framework for cryptocurrencies. Several proposals and bills have been discussed, aiming to regulate the crypto industry without disrupting innovation. The intent is to ensure that India does not miss out on the opportunities presented by blockchain technology and digital currencies while safeguarding against potential risks.

 

Challenges in Regulation

Formulating a regulatory framework for cryptocurrencies is no easy task. The decentralized, borderless nature of these digital assets poses challenges in jurisdiction, monitoring, and enforcement. Additionally, striking a balance between fostering innovation and ensuring security, transparency, and consumer protection is tricky.

 

The Way Forward for Cryptocureency in India

India's approach towards cryptocurrency regulation seems to be one of 'cautious optimism.' The government is keen on understanding the technological underpinnings, potential applications, and global best practices before formulating any policies.

 

Conclusion

Cryptocurrency in India stands at a pivotal juncture. While it's not illegal, its future is heavily dependent on the regulatory framework that the government is likely to introduce. As global trends indicate a gradual shift towards accepting and adopting cryptocurrencies, it remains to be seen how India, with its vast potential as a market, navigates this intricate domain. For now, enthusiasts, investors, and businesses tread with both excitement and caution, awaiting clearer directives.

Is Cryptocurrencies Legal in India? All You Need To Know
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Is Cryptocurrencies Legal in India? All You Need To Know

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.