Is Cryptocurrency Legal In India?

Is Cryptocurrency Legal In India?

Cryptocurrency in India: Not legal tender
Cryptocurrency exchanges: Regulations being considered

Cryptocurrency is not legal tender in India.  While cryptocurrency in India can be exchanged due to the absence of a robust regulatory framework, a protracted licensing process makes it very difficult for certain service providers’ technologies to operate. Although there is a lack of clarity over the tax status of cryptocurrencies, the chairman of the Central Board of Direct Taxation has said that anyone making profits from Bitcoin will have to pay taxes on them. Other Income Tax Department sources have suggested that cryptocurrency profits should be taxed as capital gains. In February 2022, Minister Bhagway Karad, indicated that cryptocurrency transactions could face a 30% tax – and the government subsequently announced taxation provisions for cryptocurrencies in its 2022 annual budget. 

While it has maintained a staunch opposition to cryptocurrencies and their trade, the Indian government has been tentatively open to the possibility of introducing a central bank digital currency (CBDC). In December 2021, the government released its Trend and Progress of Banking in India 2020-21 report. The report revealed that the RBI is exploring ways in which an Indian CBDC could provide a safe and effective alternative to cash, while RBI deputy governor T Rabi Shankar announced that both a ‘retail CBDC’ and a ‘wholesale CBDC’ are in development. In April 2022, Finance Minister Nirmala Sitharaman announced the Reserve Bank of India was likely to roll out its CBDC during the current financial year. 

Cryptocurrency Exchange Regulations

Cryptocurrency exchange regulations in India have grown increasingly strict. In 2018 the Reserve Bank of India (RBI) banned banks and any regulated financial institutions from “dealing with or settling virtual currencies.” The sweeping regulation prohibited the trade of cryptocurrencies on domestic exchanges and gave existing exchanges until 6 July 2018, to wind down. In 2020, a landmark Supreme Court decision ruled the ban unconstitutional, reversing the prohibition of cryptocurrency in India and allowing exchanges to reopen. 

Future Regulations for Cryptocurrency in India

In 2019, a leaked, alleged draft bill from an inter-ministerial committee recommended a blanket ban on cryptocurrencies and even suggested prison time for those who “mine, generate, hold, sell, deal in, issue, transfer, dispose, or use cryptocurrency in the territory of India.” Although that draft bill did not make it to the floor of parliament, in 2021, a study from the Chairmanship of Secretary (Economic Affairs) revived the legislative push to prohibit “all private cryptocurrencies, except any virtual currencies issued by the state.” Following that study, the Indian Minister of State for Finance revealed that a new cryptocurrency bill – known as the Cryptocurrency and Regulation of Official Digital Currency Bill – would be forthcoming. 

While the Indian government has made its opposition to private cryptocurrencies clear, in November 2021, the Standing Committee on Finance met with representatives of crypto exchanges and concluded that the forthcoming bill should regulate cryptocurrencies rather than ban them. As of February 2022, the cryptocurrency bill had not been approved by India’s parliament, meaning that the legislative status of cryptocurrencies in the country remains unclear.

Despite progress on India’s cryptocurrency bill has been slow, the development of its CBDC has continued. On 1st February 2022, Finance Minister Nirmala Sitharaman formally proposed the introduction of a CBDC in India’s annual budget. The proposed CBDC will be issued by the RBI, be legal tender in digital form, and be implemented in a way which promotes financial inclusivity.