The Indian Government’s love and hate relationship with cryptocurrencies is amusing. It seems like the government itself is not sure as to what to do with digital currencies.
In this article, we will analyze the sentiments of the Indian government on crypto regulations from the start to get an answer to the question: Is Bitcoin legal in India?
The success of Bitcoin pushed the world to recognize the significance of digital currencies. It opened the minds of people to the immense possibilities of a decentralized financial system.
It is due to the wholehearted acceptance of decentralized finances that the metaverse is becoming a reality today.
With so much development happening around cryptocurrencies, the Indian government is still not ready with a concrete plan for crypto.
Cryptocurrencies are not entirely illegal and nor has the Indian government banned them. Crypto investors were waiting anxiously for budget 2022-23.
Instead of a clear plan on crypto, the government introduced crypto taxes. And a hesitant fuzzy concept of introducing Digital Rupee.
If you want to buy Bitcoin or other cryptocurrencies you can buy it from any of the below:
Tracing The Journey of Crypto Regulations in India
According to the Analytics Insight report, Indians had invested over $6.6 billion in crypto as of May 2021. At the end of November 2021, the numbers surged to cross the $10 billion mark.
In a nation with over 20 million crypto investors, the government does not seem to digest the decentralized currencies. For the Indian government crypto is risky and unregulated.
The RBI governor considered Tulips more valuable than cryptocurrencies. It is odd to see why the government is unable to see the merits of the new blockchain-based economy.
Let us trace the journey of India’s reactions to cryptocurrencies which may provide an understanding of the Indian Government’s changing view on the legality of Bitcoin in India
The Year of Warnings
Though India never openly banned cryptocurrencies it has always warned its citizens. In 2013, RBI issued a circular warning people not to invest in cryptocurrencies. According to RBI, crypto poses security, operational, financial, and legal risks.
If RBI is to be believed, investing in cryptocurrencies like Bitcoin can be risky and people should be careful to invest their hard-earned money in them. As it is not regulated by any institution, it can be a fraud and the creators of a particular cryptocurrency could disappear with everyone’s money. RBI also says investing in crypto is risky due to its volatility and security reasons.
Blockchain Technology is highly secured
For someone who understands the concept of blockchain and decentralized finances, crypto is a safe investment. And because of the decentralized nature of cryptocurrencies, no institution or government has control over it.
There is nothing more secure and unhackable than a Blockchain network. The Bitcoin transactions are stored in blocks. The data stored in the blocks of the blockchain network is immutable and irreversible.
The system is designed in a way to cross-refer with its network of nodes and automatically corrects itself.
Yes! People have lost their crypto to theft. It is because they did not store it in a crypto wallet safely or they stored them at Centralized Cryptocurrency Exchanges. Centralized Cryptocurrency Exchanges like Binance, Kucoin, OKX etc are vulnerable to cyber attacks by their inherent nature. It is not because the underlying system (i.e. blockchain) of cryptocurrency is weak.
The transactions on crypto exchanges continued even after the first warning. The RBI then issued a second warning to people and all institutions of the risks of virtual currencies.
By the end of 2017, RBI had to issue a circular warning as well as clarify that Bitcoin is not a legal tender in India.
In November 2017, the government also formed a committee to study and analyze the crypto market and blockchain technology.
The Era of Rising Demands of Crypto Ban
The demand to ban crypto did not come from the people or investors. The Central Board of Digital Tax or CBDT asked the government to ban all cryptocurrencies.
Ban on Cryptocurrencies by RBI
In March 2018, the CBDT submitted a report to the finance department stating the risks crypto poses. It asked the government to ban all digital currencies in the country.
With immediate effect, RBI issued a circular asking all the financial banks and institutions to ban all transactions related to crypto.
The RBI deputy Governor B.P.Kunungo said Bitcoin and other cryptos are a chain of black money. According to the Indian government, criminals use digital currencies for money laundering, terror funding, black money circulation, and the flourishing black market.
India is not the first country to worry about the illegal use of digital currencies. The US financial regulatory body FinCen has also come up with several rules to regulate crypto transactions.
Witnessing the ban of financial services related to crypto platforms, Indian investors feared a complete crypto ban. The prices of popular cryptocurrencies like Bitcoin, Ethereum, and others plunged.
In April 2018, the finance minister appointed a committee to draft a crypt regulatory bill. The committee did not focus on banning but on regulating virtual currencies. At least the committee then was assuring investors that Bitcoin is legal in India.
Lifting of Ban by Honourable Supreme Court
Since the 2018 ban, the crypto exchanges weren’t fully functional. However, the honourable Supreme Court revived them in 2020. Supreme Court instructed RBI to lift bans from banks and financial institutions from providing access to trading crypto.
However, the suspense over the crypto ban was clear after the statement of the finance minister on 9th February 2021.
Nirmala Sitaraman said, “A high-level Inter-Ministerial Committee (IMC) constituted under the Chairmanship of Secretary (Economic Affairs) to study the issues related to virtual currencies and propose specific actions to be taken in the matter recommended in its report that all private cryptocurrencies, except any virtual currencies issued by the state, will be prohibited in India.”
Later in the year 2021, RBI Governor Shaktikanta Das underlined his opposition to cryptocurrencies, saying that because cryptocurrencies are not under the control of central banks and hence, could pose a severe threat to any financial system.
The RBI stated its intention to create an official digital currency in response to the proliferation of cryptocurrencies such as Bitcoin, which has raised several issues for the central bank.
Finance Minister in Rajya Sabha said “This is a risky area and not in a complete regulatory framework. No decision was taken on banning its advertisements. RBI and SEBI are taking Steps are taken to create awareness though. The government will soon introduce a Bill.”
The 2022-23 Budget
The government in the budget 2022-23 introduced a tax regime for all digital currencies. According to the new tax regime, crypto investors have to pay a 30% tax on crypto profits.
Let us assume you have invested Rs. 1,00,000 and earned a profit of Rs.50,000. Now the 30% tax slab will be applied to the profit earned which is Rs.50,000.
The Indian crypto investor community is not happy with this rule. The investors argue that the government instead of coming up with a concrete plan of crypto is collecting taxes on their profits.
The government did not ban or legalize digital currencies and assets in the budget session.
The finance minister also announced the launch of Central Bank Digital Currency (CBDC) to give a boost to the digital currency. It will also help to divert people’s interest from private digital currencies to government-owned.
Bottom Line: Is Bitcoin legal in India?
Cryptocurrencies are not illegal and nor has the Indian government banned them. The government has only imposed a tax on the profits earned on crypto. However, it does not mean that the government is encouraging crypto investments.
The Indian government is still not clear on its stand on digital currencies. But Nirmala Sitaraman has clearly stated that the government in no way is legalizing crypto soon.
Unlike in El Salvador, Bitcoin is not a legal tender in India. Being a legal tender means just like Indian Rupees you can buy and sell commodities with Bitcoin too. El Salvador’s government has introduced the Bitcoin bill. Now Bitcoin along with the US dollar will be accepted as currency all over the nation.
Only time will decide what plans the government has for cryptocurrencies and assets. Till then we can say that legality of Bitcoin (including other Cryptocurrencies) falls in the grey area.