It’s very confusing for everyone to understand whether cryptocurrency is legal in India or not?
Some statements object the ban, while some derive the support it has.
Awaiting the Supreme Court’s verdict on this, many of us still need to understand this money is legal anymore in India or not!
Well, to tell you frankly, it’s been quite a ride from the barter system to a world of paperless money! The concept of money itself has changed its existential value from cattle and grains to shell money, then Mohur (gold minted coins) to coins.
Soon, the world was introduced with bank notes and cheque-books, which represented money for a large cycle of our lives, till debit cards & credit cards stepped in the domain and changed the value of money entirely.
As soon as the money was represented in the form of plastic, and the transactions sought a digital road, money again upgraded its look to a digital value and began the reigning period of cryptocurrency.
How has Cryptocurrency been seen over time?
Over the time that has been passed, cryptocurrencies have been compared to Ponzi schemes, pyramid schemes and economic bubbles.
While cryptocurrencies are digital currencies that are encrypted with advanced techniques, many governments have taken a cautious approach towards them, because of the lack of central control and questionable effectiveness of its financial security.
Many regulators have warned against cryptocurrency in many countries, whereas some of the countries have taken strong measures to talk people out of it. There are many banks that do not offer services for cryptocurrencies and can refuse to offer services to cryptocurrency companies as well.
There is no consumer protection against fraud or any chargebacks, if cryptocurrency is lost or stolen; since there is no intermediary with the power to limit consumer losses. In October 2017, BlackRock CEO, Laurence D. Fink said, “It’s an ‘index of money laundering’. Bitcoin just shows you how much demand for money laundering there is in the world.”
Legal Status of Cryptocurrency in India
Economic Times reported that in February 2018, Finance Minister Arun Jaitley’s Budget speech, especially one line in-particular, caused a commotion in the national press, which resulted in bitcoin prices plummeting to $8,800 in December 2017, from an all-time high of $19,343.
While Jaitley never mentioned a ban or any specific regulations, yet, his tone of speech regarding this seemed pretty clear. He chose his words cautiously, indicating clearly that the government was not in favour of cryptocurrencies and would be taking many steps in future to discourage its use.
He also said, “The government will take measures to eliminate the use of such currencies in financing illegitimate activities or as part of the payment system.”
According to the Finance Minister, cryptocurrencies are not considered as a legal tender by the Government and their role in India’s payment system will be determined by the regulations set by the Reserve Bank of India (RBI).
Since RBI handles policy formulation and enforcement of payment systems regulations, cryptocurrency thus came under it, and not under the Securities and Exchange Board of India (SEBI) as some had thought.
There is an uncertainty that the cryptocurrency in India faces, while the verdict may take some time to clear the government’s approach towards the industry.
However, in Quartz India it was reported that in April 2018, soon after, the bourses challenged this in the supreme court, RBI had directed banks to shut-out all cryptocurrency-related accounts within the first week of July.
Now, after the Reserve Bank of India has suppressed the use of Bitcoin, the cryptocurrency sector has been overflowing with challenges. RBI banned services dealing with cryptocurrencies since many monetary concerns regarding money laundering, consumer protection and market integrity were raised.
The RBI had also cautioned users against the trading with the use of cryptocurrencies.
What raised doubts on the legality of blockchain was when Zebpay, India’s first most trusted cryptocurrency exchange and secured bitcoin, shut down its operations and moved its base from India to Malta. Last week, the first Bitcoin ATM was installed in India, which was later seized by Indian authorities, arresting the founder of the ATM company, Unocoin.
It was reported that RBI had begun a crackdown on all things crypto-related much before the machine was even installed.
Many media sources have cited that the authorities who reportedly said that the ATM “had not taken any permission from the state government and is dealing in cryptocurrency outside the remit of the law.” According to a police official quoted by the Times of India, the central bank considers cryptocurrency “illegal.”
RBI Guidelines on Cryptocurrencies
As per the current regulations suggest, if there’s a ban forthcoming on the cryptocurrency then it will reduce the exposure to cryptocurrencies and also limit the growth in the global crypto space.
RBI has instructed banks and financial institutions to stop accepting the digital currency as a mode of payment, due to which many investors are increasingly facing losses.
It has directed people to stop investing in it because all this money is public money and the regulator cannot allow these institutions to put the public money at risk without proper laws to protect customer interests
According to an ET news report, “the Income Tax department gave around 500,000 notices to Bitcoin and other cryptocurrency investors and sought answers to 28 questions.”
Major concerns have been raised by the RBI over the decentralized nature of cryptocurrencies, raising issues in its worth and value.
India’s supreme court has been pushing the RBI to clarify its viewpoints around cryptocurrencies once and for all. It has set a deadline of two weeks for it to do so, according to the Economic Times. The RBI has established a blockchain and cryptocurrency research unit to help meet that deadline.
Specialized taxes for digital assets are being considered as other alternatives to a ban and a proposal is currently under consideration by the Indian government, which would apply GST of 18% to cryptocurrency trading.
If that measure is approved, then the Government could choose to levy that tax from the date the tax category was first instated.
How can ban on cryptocurrency in India pan out?
Cryptocurrency is currently legal in India, but in July RBI banned the country’s banks from servicing businesses involved in exchanging or processing digital assets, citing the risks to financial stability and security as mentioned above.
However, nobody noted that India never banned cryptocurrencies outrightly as RBI, still awaits the supreme court’s decision, as it continues to uphold the ban even after hearing a raft of petitions.
Due to a blanket ban on the cryptocurrencies, there is a chance that India might be choking the blockchain-related technology, which will definitely escape from India.
Many of the innovations under blockchain will move away from India, making many institutions in India feel restrained to use the public blockchain, as it will also involve the use of cryptocurrencies.
Not only there is a huge chance for India, to become technologically poorer since blockchain technology has many applications in the fields of farming, education, health, banking, real estate, etc.
Even if a ban comes into effect, it may not be immediate.
The blockchain is useful as a ledger as it keeps the data in public domain, which can be secured and protected; but if you remove crypto from blockchain, then the database will become so slow and inefficient. Therefore, in a pragmatic sense, a blanket ban on cryptocurrencies is easier said than done.
As the 19th meeting of the Financial Stability and Development Council (FSDC) took place, the topic of cryptocurrencies also came up, which was headed by India’s finance minister Arun Jaitley. The Finance Ministry submitted a press release through the Press Information Bureau, deliberating on the issues and challenges of cryptocurrency in India.