Legality of Cryptocurrency in India & What does the Government say

9 Jul 2021  Read 427 Views

Humans interact with each other in many ways, one of which is exchange of goods and services amongst themselves. Ever since the beginning of human settlements people have been interacting each other for purpose of commerce. It started with barter, where one person would exchange certain item in return for some other item. 

As we evolved, humans realized that certain items are more valuable than others thus barter would leave one in a less advantageous position than another. This issue was redacted by introduction of coins which were accepted by everyone as consideration for sale or rendering of services. Since then, the notion of currency has evolved dramatically. From coins to currency notes it has been a steady development.

What is Cryptocurrency?

Cryptocurrency is the latest link in this chain. It seeks to create a digital currency based on a complex computation system with the aim of decentralising the currency regulation which at present vest with the federal or Union government of each country. Cryptocurrency uses a complex method of verification and recording of each transaction through a method called cryptography. It is this method which provides it security and protection against counterfeiting. At present there are over 4500 cryptocurrency, some popular cryptocurrencies are Bitcoin, Ethereum, Ripple, Dogecoin etc.

The highly decentralized nature of cryptocurrency and its peer-based network with each network maintaining a ledger which records every transaction done through a cryptocurrency, making it highly secure. Both of these qualities together have made cryptocurrency very popular today creating a new paradigm in how financial or monetary transactions take place. But the countries are still sceptical about their utilisation, barring El Salvador (which only recently allowed the use of cryptocurrency) no other country allows transaction in cryptocurrency. This does not mean they are illegal. One can invest in them, buy them, sell them, but they are not yet allowed to be used in a day-to-day transaction.

Are your Crypto Investments Legal in India?

In India the legal framework around Cryptocurrency is still absent with the exception of few directives that act as either advisory or instruction for its usage. Cryptocurrencies are not illegal in India, and cryptocurrency exchanges such as WazirX allows one to invest in them, but that is all that Indians can do now. That is, just invest in cryptocurrency as they are still not allowed to be used in transactions. The stance of the Indian Government on Cryptocurrency has been through various phases.

The presence of Cryptocurrency was first acknowledged by the Reserve Bank of India in 2013 when in the Financial Stability Report released by RBI in June 2013, defined Virtual Currencies as type of unregulated digital money. 

After which the RBI mostly took firm stance against the currency which culminated in 2018, when in one of its circulars RBI prohibited use of the Banking system for cryptocurrency-related payments. This ban was then overturned by Supreme Court in 2020 in the case of Internet and Mobile Association of India vs Reserve Bank of India, which deemed the said 2018 Circular of RBI as unconstitutional and being in violation of Article 19.


What lies ahead?

Indian Government too has been blowing hot and cold on the status of Cryptocurrency and their future, with their initial stance being that it should be banned. An Inter-Ministerial Committee which was constituted in 2017 submitted its report in July 2019 in which it recommended a blanket ban on private cryptocurrency. Since then, the government has taken many turns. In the year 2021 alone Finance Minister Nirmala Sitaraman stated that a high-level committee was in favour of blanket ban on private cryptocurrency but in a statement in March 2021 Finance Minister possible compromise. Further, RBI Governor Shaktikanta Das, in Feb 2021 stated that the Central Bank has reservations about cryptocurrency and is instead working on its own digital currency. 

Disclosure of Crypto Investments mandatory for Companies

Recently Ministry of Corporate Affairs by amending the Schedule III of Companies Act 2013 has directed companies to disclose their investments in cryptocurrency along with source of fund and profit or loss earned through such transactions. Interestingly this comes on the heels of Government's plan of introducing a new bill titled “Cryptocurrency and Regulation of Official Digital Currency Bill” which intends to ban private cryptocurrency and instead create a regulated framework for an official Digital Currency which will be issued and controlled by RBI, although there are speculations and unrest with regard to the usage of term “Private Cryptocurrency”, the bill is not yet available on public domain therefore nothing definite can be said about it. 

This would be the second legislation related to cryptocurrency, the prior one being Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019, that seeks to introduce a punishment of 10-year prison sentence for persons who “mine, generate, hold, sell, transfer, dispose, issue or deal in cryptocurrency”, the law is harsh and abrasive for the investors and has been widely criticised.  

Conclusion

The hazy stance of the Government against the future of cryptocurrency has left over 10 million Indian Investors on tenterhooks. The delay in clarifying the position on the cryptocurrency has made decision complicated for the government now as Indians have invested over 1500 crore in cryptocurrency, hence an outright ban will have a drastic effect on the populus of cryptocurrency investors in India. 

The government is a crucial juncture a blanket ban will not only destroy investors but also imply that India would be left behind in an important technological development which is been seen as a future of Fintech (a portmanteau of “Finance” and “Technology”) as the market of cryptocurrency is not minuscule which can be ignored, as of June 2021 cryptocurrency market stand s at $1.33 Trillion, as per Coin Market Cap. But whatever it is that India needs to do it should not continue with its present snail's Pace.

About the Author: Shikha Rohra | 12 Post(s)

Shikha is a graduate from HNLU, Raipur and has an interest in content writing. She is an ambivert with a sarcastic sense of humor and her favorite guilty pleasure is over-using social media.

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