India to Introduce Cryptocurrency Regulations by 2024
India has not enacted any special legislation regarding virtual currencies, but it has aligned crypto with various existing government statutes. The Companies Act, 2013 now requires the reporting of virtual digital assets (VDAs), while the Prevention of Money Laundering Act, 2002 has been expanded to include transactions involving VDAs and crypto exchanges. The income tax laws in India have also been adjusted to account for the taxation of VDAs, recognizing the financial implications of the virtual currency market’s growth.
In recent years, India has recognized the legal status of cryptocurrencies, with income tax laws and anti-money laundering laws expanding to include virtual currencies. This report will explore the legal status, associated laws, and existing regulations of cryptocurrencies in India.
Executive Summary
Since the introduction of the Cryptocurrency and Regulation of Official Digital Currency Bill, there have been discussions about establishing a legal framework for crypto operations in India. The bill contains necessary regulations related to cryptocurrencies, reflecting the complex legal journey of cryptocurrencies in the country.
Legal Status of Cryptocurrencies in India
There is no central regulatory body for cryptocurrencies in India. However, the legality of these currencies has gained attention as the finance minister, Nirmala Sitharaman, suggested taxing digital assets. Let’s uncover the details about cryptocurrency and its regulatory status in India step-by-step:
Not a Legal Tender
Virtual currencies like Bitcoin are not recognized as legal tender in India. The Reserve Bank of India (RBI) has clarified that cryptocurrencies lack official backing and are not regulated by the government.
RBI Circular (2018)
In 2018, the RBI prohibited banks from providing services to individuals or businesses dealing with cryptocurrencies. This circular disrupted the crypto industry in India by making it challenging to convert crypto into fiat currencies.
Supreme Court on Cryptocurrency
In 2020, the Supreme Court of India deemed the RBI circular disproportionate and unconstitutional. This landmark judgment provided relief to the crypto industry and allowed for the resumption of crypto trading and investments.
No Specific Regulations for Cryptocurrency
Cryptocurrencies are not illegal in India, but there is no specific legislation or regulatory mechanism governing the usage of VDAs. This creates challenges and uncertainty for businesses and investors.
Cryptocurrency Regulation Bill Proposal
In 2021, the Indian government introduced the Cryptocurrency Regulation Bill, which aims to ban private cryptocurrencies and establish a framework for a central bank digital currency (CBDC) issued by the RBI. The bill is still under discussion and has not been passed.
Indian States on Cryptocurrency
States like Telangana and Karnataka have shown interest in exploring blockchain technology.
RBI and Cryptocurrencies
The RBI has taken restrictive measures regarding cryptocurrencies.
Circular of 2018
The 2018 circular from the RBI restricted banks from providing services to individuals or businesses dealing with cryptocurrencies. It aimed to address concerns over investor protection, market integrity, and money laundering. However, the circular was overturned by the Supreme Court in 2020, boosting the crypto industry in India.
Warning Statements
The RBI has consistently expressed concerns about the risks associated with virtual currencies and has issued public notices cautioning the public about the potential pitfalls of investing in cryptocurrencies.
CBDC in Picture
The RBI has shown interest in exploring the development and issuance of a central bank digital currency. It has conducted pilots and studies to assess the benefits of introducing a digital rupee.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021
This proposed legislation aims to regulate cryptocurrencies in India. Key aspects of the bill include a ban on private cryptocurrencies, the establishment of a framework for a CBDC known as the Digital Rupee, and the creation of a regulatory body called the Digital Currency Board of India (DCBI).
Timeline
Various significant events have shaped the legal journey of cryptocurrencies in India.
Final Thoughts
India has taken a cautious approach to the adoption and regulation of cryptocurrencies. It is expected that a definitive legal framework will be established by 2025, considering the country’s high crypto adoption rate in 2023. India has the potential to become a fertile ground for cryptocurrency profits.