This article on “Banning of Cryptocurrency in India: All You Need to Know”; is written by Kashish Goyal. She is Content Writer & Legal Researcher at Legal Thirst.
Table of Contents
Abstract
This Article mainly focuses on a major legal issue in India “Cryptocurrency” especially during this pandemic where people are mostly working online or from home itself. In this article, I have given a brief about cryptocurrencies and how it works. Till now many bills have been drafted for putting some restrictions or regulating the cryptocurrency. I have written the highlights of the bills and one of the landmark judgment related to cryptocurrency in India. Lastly, The Finance Ministry also gave some views recently which I have mentioned.
Introduction
In India, due to the rise in the field of technology, people are investing in virtual currencies such as bitcoin, Ripple etc. especially during this pandemic. It is independent of any central authority. But due to massive use of cryptocurrency it has led to loss to the government of India. That’s why there is a need for a regulatory framework to prevent the misuse of crypto-currencies. There should be a safe technological environment.
Cryptocurrency
It is a medium of exchange which is in the digital form and decentralized. The Central government has no control over the cryptocurrency. Although the value of the currency is determined over the internet by the customer itself not by the government. It provides the platform to the users where they produce private currencies without the help of banks and other authorities. In this, neither the government nor any authority decides the terms of ownership instead the system itself decides. It spreads through the various no of computers in a shared network. It is used to purchase the goods and services, online shopping and for any other online transaction.
Cryptocurrency can be purchased by selling goods and services or by directly purchasing from the bitcoin exchange by giving the currency. Bitcoin is the first cryptocurrency which was launched by a group named “Satoshi Nakamoto” in 2009. It is easily transferable from one device to another.
How Cryptocurrency Works ?
A technology behind the cryptocurrency is the Block chain which enables the transactions to be shared among the larger networks. It is a public ledger under which all the transactions which are confirmed are recorded. The Block chain allows the wallet to calculate the spendable balance which is owned by the spender. The Wallet contains the key which is used to sign a transaction. There is a process named “Mining” which is used to confirm the pending transactions and further include it in the block chain.
Pros & Cons of Cryptocurrency[2]
| PROS | CONS |
|---|---|
| Easily transferable of funds between the parties | By this, it easily focuses on illegal activities. |
| It is a cheaper method to do online business or transactions. | It is not used everywhere, and has limited value. |
| Minimum fees required | Payments are irreversible [3] |
| Safe and Secured payments | Identity of the party is unclear |
Legal Status
Factor of Risk – RBI States
Press releases ( 2013-14); It cautioned the traders of Virtual Currencies such as Bitcoins, dogecoins about the customer protection and security related risks. As they stated that there is scope of illegal activities, high risk. And loses arising out of the hacking, malware attacks or loss of password. [4]
Press Release of (2016-17, 2017-18), which stated that RBI has not given any license to company to deal with Bitcoins or any other digital virtual currencies [5].
In 2017, a committee was formed to analyse the issues related to digital currencies. This Committee was made under the chairmanship of Subhash Chandra Garg; and further stated that all the private cryptocurrencies should not be allowed.
Parliamentary Actions
The Centre constituted an Inter – Ministerial Committee which proposed a Bill named “Crypto Token Regulation Bill of 2018” and recommended that those persons who are dealing with the activities of crypto tokens from falsely posing the products or to regulate the virtual currency exchange.
In 2018, a circular was issued by the Reserve Bank of India “Prohibition on dealing in Virtual Currencies” which prevents the banks or businesses to deal with the virtual currencies or those entities which are providing such services shall stop such services within the three months of the circular.
In 2019, a draft was made named “The Banning of Cryptocurrency & Regulation of Official Digital Currency Bill” [6]. Under this Bill Cryptocurrency is defined as any information or code which is made through the cryptographic; and has a digital representation or act as a store of value.
Highlights of the Bill
The Banning of Cryptocurrency & Regulation of Official Digital Currency Bill has following features:-
- It prohibits mining, selling or disposal of cryptocurrency in India and which is punishable with an imprisonment of 10 years.
- A person may dispose of cryptocurrency in his possession from the date of commencement of this act.
- If any person is issuing any advertisement and inducing the participation in use of the cryptocurrency shall be punishable with imprisonment of seven years.
- Also, If any person is acquiring or storing the cryptocurrency for use of non- non-commercial purposes, it shall be punishable with fine.
Following Amendments in Bill
In 2021, a new Bill is proposed named “The Cryptocurrency and Regulation of Official Digital Currency Bill 2021” .This Bill prohibits all the private cryptocurrencies such as Bitcoin, Ripple, Ethereum etc. and it provides for the framework for creation of official digital currency.
In March 2021, an amendment was made in Schedule III of the Companies Act. According to this, companies disclose their profits or loss, investments, details of deposits, amount of holding in cryptocurrencies. The main behind this to open the door for the people to have Crypto on balance sheets [7].
Landmark Judgement
But after the circular was issued in 2018, The Internet and Mobile Association of India filed a petition in Supreme case and stated that to withdraw the Circular issued by the RBI [8]. The Supreme Court struck down the Circular issued by the RBI which imposed the ban on trading of virtual currency in India. Also in the case, the court examined the matter from the view of Article 19 (1) (g) of Indian Constitution and doctrine of Proportionality.
Cryptocurrencies are not illegal [9] in India means you can buy or sell bitcoin, but there are not any strict regulations to govern this body. As they are also taxable in India if a person is earning an income is an Indian resident or the crypto is domiciled in India. Many circulars were issued for banning cryptocurrency but presently there is no strict rule for this.
Cryptocurrency Trading is Legal or Illegal?
There is huge increase in trading of the cryptocurrency as there is no mention of restriction on purchasing or selling of cryptocurrency; but they are taking steps to prevent the crypto currency from the illicit activities [10]. There will be no full prohibition on the use of cryptocurrency as fiancé minister said that; they will allow certain people to use bitcoin, block chain or any other cryptocurrencies.
Conclusion
It is concluded that in India, there is no structured or organized regulatory framework for cryptocurrency. But there should be some strict regulation to govern the digital currency. The government should also clearly mention the advantages and disadvantages of the cryptocurrency for the public.
- https://bitcoin.org/en/how-it-works
- https://byjus.com/current-affairs/cryptocurrency/
- https://digimantralabs.com/cryptocurrency/#:~:text=It%20doesn’t%20have%20a,time%20exchange%20rates%20as%20well.&text=%E2%80%93%20It%20is%20very%20fast%2C%20easy%20and%20cheap%20to%20use.
- http://www.legalserviceindia.com/legal/article-4720-cryptocurrencies-and-related-legal-issues-in-india-with-special-reference-to-bitcoin.html
- https://www.mondaq.com/india/fin-tech/1045376/cryptocurrency-in-india-to-ban-or-not-to-ban
- https://prsindia.org/billtrack/draft-banning-of-cryptocurrency-regulation-of-official-digital-currency-bill-2019#:~:text=Draft%20Banning%20of%20Cryptocurrency%20%26%20Regulation%20of%20Official%20Digital%20Currency%20Bill%2C%202019,-Ministry%3A&text=The%20draft%20Bill%20seeks%20to,of%20cryptocurrency%20in%20the%20country
- https://www.legal500.com/developments/thought-leadership/the-legality-of-cryptocurrency-in-india/
- Internet and Mobile Association of India vs. Reserve Bank of India , Writ Petition (Civil) no. 528 of 2018
- https://www.businesstoday.in/current/corporate/cryptocurrency-in-india-what-the-govt-stand-legal-status-its-future/story/439598.html
- https://www.goodreturns.in/classroom/will-government-allow-bitcoin-cryptocurrency-trading-in-india/articlecontent-pf19357-1209546.html
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