As we all know, cryptocurrency is a form of virtual currency that stores data on a digital ledger, also known as Blockchain. The function of cryptocurrency made it easier for many individuals, there by eliminating the need for financial institutions. Nevertheless, these de-centralised features also make it difficult for the government to trace any illegal transactions. Therefore, in the interest of investor security, the Central Government and Reserve Bank of India (RBI) have proposed several measures to regulate such matters. These measures have been challenged publicly and legally.
We examine the regulatory landscape of cryptocurrency in India and how the future could pan out.
All along, the RBI and the Central Government were leaning towards a (full or partial) ban on virtual currencies. Their reluctance towards accommodating VCs in the Indian economy is evident:
Before 2015: RBI warned traders and holders of VCs about the risks involved, and expressed that VCs are not an
authorized mode of payment.
2017: RBI clarified that no licenses were granted to entities dealing with VCs, and issued additional press
releases to highlight the risks associated with VCs.
2018: RBI issued a strong announcement stating that all entities licensed by them to stop dealing in VCs or providing any services which facilitates anyone to trade VCs. While this is not an official ban on VCs, the restriction for VC exchanges to open any bank account or obtaining a bank loan simply disrupt their business operations.
During the announcement of the annual Finance Budget in the Parliament, the Central Government stated that it does not consider crypto as a legal tender.
2019: Recommended that all private cryptocurrencies be banned in India based on various studies from the Inter-Ministerial Committee. A bill of ‘Banning of Cryptocurrenncy and Regulation of Official Digital Currency, 2019’ was also introduced, which imposed a blanket ban on all cryptocurrencies and undertaking any transactions involving crypto assets. This bill, however, was not placed before the parliament for its consideration.
2021: The Central Government’s aversion to cryptocurrencies was, once again, indicated in 2021 when the Parliament Bulletin listed “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” (“2021 bill”) as one of the proposed laws to be considered. Though a bill has not yet been made available in the public domain, the Bulletin noted that it seeks to prohibit all private cryptocurrencies but provides certain exceptions to promote the underlying technology. However, the 2021 bill was not tabled in the subsequent session.
Later in 2021, the status of VCs was questioned before a Delhi Metropolitan Magistrate Court. Questions such as “Are they legal tender, commodities, consumer products or something else?” The court concluded that ‘while crypto is not a legal tender, all transactions have to be compliant with general laws’.
2022: While the legality of cryptocurrencies continues to be a grey area, some clarity was provided during the Parliament’s annual fiscal budget announcement in February, 2022 (“Finance Bill”). The Finance Minister announced that income from virtual digital assets would be taxed at a flat 30% coupled with a tax deduction at source of 1%. Many stakeholders inferred this to be a form of acceptance towards VC despite how the announcement did not indicate whether crypto shall be regarded as a legal tender or an investment class.
Despite all that ambiguity, in March 2022, the RBI’s put out an official statement indicating that Cryptocurrencies are akin to Ponzi schemes and should be banned outright.
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