Recent developments in the crypto world, including Bitcoin freefall from $65,000 in April to below the $40,000 mark after Elon Musk's statements, have brought back focus on laws around the governance of cryptocurrencies in India. Around 7 million Indians have already pumped in over $1 billion into cryptos and the government has the tough task to allow fintech space to flourish in India while making sure it's done without safety concerns. Let's understand the central government's stand on cryptocurrencies and their legal status in the country.
What's the government stand on cryptos?
After dilly-dallying over legalising or banning cryptocurrencies, the Indian government has taken an encouraging step towards regulating digital currencies in India. The Ministry of Corporate Affairs (MCA) has made it mandatory for companies to disclose crypto trading/investments during the financial year. Experts see it as a positive step and expect the taxation rules to follow through. This is being considered as the first step towards regulating cryptocurrencies in India.
The accounting of crypto assets is aimed at curbing illegal activities and circulation of black money via cryptos. It can also improve corporate governance with more transparent disclosures. The Centre has assured crypto stakeholders that there won't be a blanket ban on digital currencies and that it's still formulating its full opinion on the matter. Finance minister Nirmala Sitharaman has said the Centre was open to experimentation with new technologies and is not closing its minds for them.
What's its legal status in India?
Cryptocurrencies are not illegal in India. So if you want to buy, let's say Bitcoins, you can do so and start trading in it. However, India does not have a regulatory framework to govern cryptocurrencies as of now. The government had constituted an Inter-Ministerial Committee (IMC) on November 2, 2017, to study virtual currencies. The Group's report, along with a Draft Bill, flagged the positive aspect of distributed-ledger technology and suggested various applications, especially in financial services, for its use in India, including banks and other financial firms.
However, the Centre had flagged reservations around its misuse and wanted to put a blanket ban in India. Latest reports say cryptocurrency may not face a complete ban in India. The Centre may soon set up a panel to regulate them. The decision was taken after several cryptocurrency exchanges urged the Centre to regulate virtual coins rather than banning them.
Is cryptocurrency taxable currently?
Yes. Cryptocurrency transactions are taxable in India in cases where the person earning such gains is an Indian tax resident or where the crypto is said to be domiciled in India.
Were cryptocurrencies ever banned in India?
The RBI, through a circular in April 2018, had advised all entities regulated by it not to deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling them.
In 2018, the finance ministry had also issued a statement, saying "the government does not consider cryptocurrencies as legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or a part of the payment system the government will explore the use of blockchain technology proactively for assuring in the digital economy."
In mid-2019, a government committee had suggested banning all private cryptocurrencies, with a jail term of up to 10 years as well as heavy penalties for anyone dealing in digital currencies. However, the Supreme Court in March 2020 overturned RBI's circular, permitting banks to handle cryptocurrency transactions from traders and exchanges.
Is govt working on digital currency?
While the government has some reservations regarding cryptocurrencies, it is also working on its digital currency. The government does not want to be left behind in the new age tech revolution and aims to cash in on the benefits blockchain technology offers. "The time has come to leverage its applications while at the same time strengthening the digital infrastructure," Reserve Bank of India (RBI) Governor Shaktikanta Das had said in February while announcing that RBI is working on its digital currency.