This article on “CRYPTOCURRENCY IN INDIA: It’s Legality in 2022” is written by Risha, an intern at Legal Upanishad.
Introduction
Mining cryptocurrency is the process of solving a cryptographic algorithm through coding or other software. It is very energy-consuming and considered harmful to nature as it uses lots of energy, such as power and infrastructure. Crypto mining is banned in countries such as China and Russia. The people who mine the crypto get an automatic reward of cryptocurrencies without any investment, so a lot of people started to mine cryptocurrencies, which leads to large energy consumption, which may lead to a shortage in power, from which the ordinary people of that country may suffer.
Another thing that is always popular among millennials and Gen-Z is that some of those trends will be petty or insignificant, while others will change into a lifestyle or become a change in one’s lifestyle. One such change is the cryptocurrency, which is a digitalized form of currency. The cryptocurrency was first developed in 2009 and later welcomed in India by many businessmen, entrepreneurs, and traders in the years 2015-2016. Many have become interested in the concept of crypto-trading, as anyone who has a bank account and a PAN card can make money with less of an investment, even a 100 or 1000 rupees. But in cryptocurrency in India, is the asset acquired through such a trade legal or not?
Countries like Algeria, Bangladesh, Egypt, Iraq, Morocco, Nepal, Qatar, and Tunisia have independently banned the market for cryptocurrency. It was outrightly banned in India in 2016 by the “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019.” The ban on cryptocurrency was removed in the budget presentation of 2022 through the bill “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.”
The Bill seeks to “create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India.” It also “seeks to prohibit all private cryptocurrencies in India; however, it allows for certain exceptions to promote the underlying technology of cryptocurrency in India and its uses.” What laws are there in India about the crypto market? Is cryptocurrency in India still banned? Let’s look at the legality cryptocurrency in this article.
WHAT IS CRYPTOCURRENCY?
Cryptocurrency is a type of virtual currency that is a type of digital asset based on a network that disperses across many devices. One among many advantages is the decentralised system of its operations, as it allows them to exist outside the power of the government or governmental authorities. Another advantage is that cryptocurrency is a way one can make faster money with cheaper investments with easy transactions and it won’t collapse with one single failure in the market. Although it has many advantages, there are disadvantages as well, like the two sides of a coin, such as very high energy consumption for mining activities and its crypto has a history of being included for illegal activities.
LAWS RELATED TO CRYPTO
Cryptocurrency is a digital currency that is circulated, made, and stored digitally. It was first developed in 2009. It became popular in India in the years 2015 and 2016. Currently, there are no rules, laws, or bans on cryptocurrency in India. Even though the crypto market was present in India since 2015, the government of India was not able to fully wrap its head around it as it was a foreign concept and it varied in the Indian context, which could affect the macro-economic condition of the country severely.
The talk about cryptocurrency in India has started since the year 2013, when the RBI (Reserve Bank of India) issued a warning circular to the people of the country against the use of virtual currencies. But it did not stop the bank transactions of crypto exchanges. Taking this into consideration, the RBI issued another circular in 2017 expressing its concerns about the matter and it.
They issued a warning saying that virtual currency transactions are not legally allowed. Two PILs (Public Interest Litigation) were filed in the Supreme Court of India on the same day, one asking to ban crypto transactions and the other to regulate them. This incident compelled the government to take the initiative to study and take action on the said matter.
In 2018, the Central Board of Digital Tax (CBDT) presented a scheme to ban cryptocurrencies. The RBI delivered a circular restricting the bank from doing any virtual currency transactions, upholding the scheme proposed by the CBDT, which resulted in the fall of crypto value and the crypto market slammed in India.
In March 2020, the supreme court of India lifted the ban on the RBI on cryptocurrencies. In 2021, the ministry of finance announced its attempt to accept the virtual currency and to propose a bill to properly regulate the virtual currency in the nation. Public crypto is now allowed in India and private crypto is still illegal. Private cryptocurrencies are those that aren’t regulated by or given out by the government of that particular country.
The central government met with officials and representatives of the Blockchain and Crypto Assets Council (BACC) to gain a better understanding of how it will affect a country’s economy, while the RBI expressed concern about virtual currencies becoming a threat to the country’s macroeconomics and financial stability.
In the 2022 budget in the Lok Sabha, the minister of finance recognised cryptocurrency and trade as legitimate and said that cryptocurrency is a risky area and that the government will not recognise Bitcoin as crypto in India. The government proposed a 30% tax on crypto assets. This amendment will take effect from April 1, 2023.
Suggestions
- As shown by countries like Australia, India as a country should be able to accept the changing concepts and techniques in the economy as they can only boost the development of a country.
- The Indian government should have more understanding of the crypto market so that they can regulate it in a way where people won’t be able to misuse it.
- The laws should be a protection to investors rather than a barrier.
Conclusion
A cryptocurrency is a digital asset secured by cryptography. Currently, in India, a bill has been passed to regulate the use and exchange of cryptocurrency, which will commence from the year 2023. Currently, there is no ban or regulation on cryptocurrency or virtual currency. The cryptocurrency and Regulation of Official Digital Currency bills are being presented in the Lok Sabha where they talk about their legal provisions such as tax, legality, etc. This bill will only provide legality to public crypto exchanges or transactions, not to private crypto exchanges or transactions.
The Reserve Bank of India, which was against the transactions of cryptocurrency in India as it may have affected the Indian economy negatively, is going to launch a blockchain-based digital currency in next year’s budget.
The government has currently planned to levy a tax of 30% on the assets of cryptocurrencies and NFTs. There are currently not many laws to regulate crypto transactions. The laws relating to crypto now are the prohibition of private cryptocurrency. Private cryptocurrencies are those which aren’t regulated by or given out by the government of that particular country, such as Bitcoin, and the taxation on assets of cryptocurrency. Other than this, there aren’t any other provisions of law to be followed now in the crypto market.
Many governments are wary of the cryptocurrency concept, but history has shown that countries that have accepted cryptocurrency transactions have only seen economic growth and that it has aided that country’s development in terms of infrastructure, technology, investment, jobs, innovation, and taxes. Australia is an example of a country that has welcomed the transaction of cryptocurrency. They have proposed regulation of cryptocurrency through “decentralized autonomous organizations” that work on the self-governance philosophy.
Like Australia, India too should be able to welcome the market for cryptocurrency or virtual currency without taking away its true essence, which is complete decentralization. Even though complete decentralisation is out of the question, at the minimum, partial decentralisation should be considered.
References
- Qureshi. 2022, February 02. From ban to regulation, the cryptocurrency’s journey so far in India. The Indian EXPRESS, technology/crypto. https://indianexpress.com/article/technology/crypto/cryptocurrency-in-india-a-look-at-the-regulatory-journey-of-cryptocurrencies-7648767/
- Kulkarni. 2022, February 03. Budget 2022 levies 30% tax and TDS on cryptocurrency in India assets. The Economic Times, business/tax/wealth. https://economictimes.indiatimes.com/wealth/tax/budget-2022-levies-30-tax-and-tds-on-crypto-assets/articleshow/89267756.cms?from=md
- Nabben. January 31, 2022. Cryptocurrency in India has an impact on economies. That’s why some are afraid of it – and some welcome it. https://theconversation.com/cryptocurrency-has-an-impact-on-economies-thats-why-some-are-afraid-of-it-and-some-welcome-it-175911