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Legality of Cryptocurrency in India

The financial-technology industry has demonstrated encouraging outcomes because of the innovations and advancements in India's technology sector. A rise in interest and popularity in cryptocurrencies like Bitcoin, Ripple, Dogecoin, etc. has been seen among Indian individuals, which has led to a significant increase in the amount of time and money that people are investing in these digital currencies.

The legality of cryptocurrencies in India has been a hot topic of conversation. The Government of India has made a number of acts that clearly demonstrate their intention to provide cryptocurrencies a recognized legal status. The Government of India established a high-level Inter-Ministerial Committee in November 2017 to report on numerous concerns relating to the usage of virtual currency. This Committee then released its report in July 2019, which suggested a complete ban on private cryptocurrencies in India.

It is interesting to note that even before the Inter-Ministerial Committee's report was submitted, in April 2018, the RBI had issued a circular prohibiting all commercial and cooperative banks, small finance banks, payment banks, and NBFC from not only dealing in virtual/digital currencies themselves, but also instructing them to stop providing services to all entities which deal with virtual/digital currencies. As a result, the growth of the cryptocurrency business in India was hindered, as exchanges needed banking institutions to transmit and receive money.

In response, cryptocurrency trading platforms filed a writ petition with the Supreme Court. In the case of "Internet and Mobile Association of India v. Reserve Bank of India", where the Supreme Court ruled that the RBI circular was unconstitutional and overturned the prohibition. The Apex Court remarked that although virtual currencies have not attained the status of legal tender, they do show digital representations of value and are capable of serving as a medium of exchange, unit of account, and/or store of value.

The "Cryptocurrency and Regulation of Official Digital Currency Bill, 2021" (the "New Bill"), is currently being considered by the Indian government. The New Bill aims to outlaw private cryptocurrencies in India with a few exceptions, promote cryptocurrency trade and its underlying technology while facilitating the development of an official digital currency that will be issued by the RBI.

The New Bill addresses the challenge of the absence of cryptocurrency regulations and proposes a total prohibition on all private cryptocurrencies. The RBI is still unsure of whether types of cryptocurrencies will be covered under the definition of private cryptocurrency, which gives rise to the dichotomy in the New Bill's proposal.

In March 2021, according to the latest amendments to the Schedule III of the Companies Act, 2013, the Government of India instructed that from the beginning of the new financial year, companies now have to disclose profit or loss on transactions involving cryptocurrency, the amount of holding, and details about the deposits or advances from any person trading or investing in cryptocurrency. The holder of any virtual currencies will also have to declare the number of holdings, details of deposit and advances from any person for the purpose of trading or investing in cryptocurrency.

In the Union Budget 2022, the Indian finance minister Nirmala Sitharaman declared that "any income from transfer of any virtual digital asset should be taxed at the rate of 30%." In addition, it has been suggested that transactions involving cryptocurrencies be subject to a 1% tax deduction at source. Additionally, the minister emphasized that taxing a virtual digital asset does not suggest that cryptocurrencies are now officially recognized as legal tender.

Investors in private crypto should be aware that the government does not have approval for it. There is no assurance that your investments will be profitable or unsuccessful; you could lose money, and the government is not liable for it. The government needs to take an effective step towards the positive regulation and enforcement of cryptocurrency as a way forward to earn the confidence of investors and the general public in developing the nation.

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