In the case of virtual currencies, India has not enacted any special legislation. However, with its increasing popularity, crypto has aligned with various government statutes like the Companies Act, 2013, necessitating the reporting of virtual digital assets (VDAs). It has also touched the broadened scope of the Prevention of Money Laundering Act, 2002, by including transactions related to these VDAs and different crypto exchanges. The income tax laws in India have also aligned themselves with the taxation of VDAs , thereby recognising the financial implications of the evolving virtual currency market.
With time, India has recognised cryptocurrencies on the legal front. The existing income tax laws and anti money laundering laws have increased their diameter to include the virtual currencies too. In this report by Coinpedia, we will cover the legal status of cryptocurrencies in India, the associated laws and the existing regulations.
After the mere introduction of the Cryptocurrency and Regulation of Official Digital Currency Bill, there have been talks of establishing a legal framework for the crypto operations in India. The bill holds a lot of necessary regulations related to cryptocurrencies. No wonder, cryptocurrencies have had a complex legal journey in India.
The report contains the basics of the legal journey of crypto from “not a legal tender” to “highest adoption level in the world”. In 2023 itself, many remarkable events, like G-20, took place to revolutionize the way people see and adapt to cryptocurrencies in India and around the world. Let’s dive in to see how the recent build-up has impacted the entire crypto scenario in India!
There is no central body operating in India to regulate cryptocurrency. However, the legality of these currencies in India intensified as Nirmala Sitharaman (the finance minister) suggested taxing the digital assets. Let us step-by-step uncover the details about cryptocurrency and its regulatory status in India:
Virtual currencies like Bitcoin, etc, are not recognized as legal tender in India. RBI has already clarified that cryptocurrencies do not have any official backing and are not regulated by any government body in India.
In 2018, the Reserve Bank of India regulated banks from providing services to individuals or businesses dealing in cryptocurrencies. This circular led to the disruption in the cryptosphere in India since it made it difficult for the people to convert their crypto into fiat currencies.
In 2020, the Supreme Court of India argued on the RBI circular stating it as disproportionate and unconstitutional. The landmark judgment gave some relief to the crypto industry and paved the way for the resumption of crypto trading and investments.
Cryptocurrencies are not illegal in India, however, there is no specific legislation or regulatory mechanism governing the usage of VDAs. thus creating challenges and uncertainty for businesses and investors.
In 2021, the Indian government introduced the Cryptocurrency Regulation Bill which aimed to ban all private cryptocurrencies and provide a framework for the creation of a CBDC issued by the RBI. The bill has not been passed yet and is still under discussion.
States in India like Telangana and Karnataka have explored blockchain technology and expressed interest in the same.
The central bank, Reserve Bank of India, has taken some restrictive measures in terms of cryptocurrencies.
In 2018, RBI issued a circular that restricted banks from providing services to individuals or businesses dealing with cryptocurrencies. It encompassed concerns over investor protection, market integrity, and money laundering. Thus, it made it challenging to convert cryptocurrencies to fiat currency.
However, the circular was overturned by the Supreme Court in 2020. The Supreme Court mentioned that RBI’s decision to ban banks from providing services to cryptocurrency related businesses was lacking a reasonable basis. The judgment gave a boost to the crypto industry in India.
The RBI has constantly expressed concerns over the risks linked to these virtual currencies. It has issued several public notices cautioning the public about the potential pitfalls of investing in cryptocurrencies.
RBI has always shown an interest in exploring the development and issuance of Central Bank Digital Currencies. It has conducted pilots and studies to determine the potential benefits of introducing a digital rupee.
However, the stance of RBI on the use of blockchain technologies has been on a positive side only! In January 2024, RBI governor Shaktikanta Das, called the cryptocurrency “party” as a threat to the emerging market economies. Thus, maintaining the years old belief of RBI that cryptocurrencies pose a palpable danger to monetary stability and could be the reason behind the next major global financial crisis.
The bill was a proposed legislation introduced by the Indian government to regulate cryptocurrencies in India. The key aspects of the bill are:
India has taken a rather slow approach towards crypto adoption and regulation. It appears that India is set to explore 2024 as a year of some big crypto decisions. It is surely evaluating all the approaches before making any definitive legislation! In a recent interview, Jayant Sinha, chair of the Parliamentary Standing Committee, suggested that India was unlikely to accept a specialized crypto regulation bill before mid-2025.
In the fast paced digital currency world, India chose to have slower strides. We expect some definite legal framework to operate in the country by 2025 as the region has shown the highest crypto adoption rate on grassroot levels in 2023. Thus, making it a fertile land for sowing the profits by cryptocurrencies.
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