5 July 2018
Cryptocurrency Regulations in India
Cryptocurrencies: Not legal tender
Cryptocurrency exchanges: Effectively illegal – regulations being considered
Cryptocurrencies are not legal tender in India. While exchanges are legal in India due to the absence of a robust regulatory framework, a protracted licensing process makes it very difficult for certain cryptocurrency services and innovative technologies to operate. Although there is currently 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.
Cryptocurrency Exchange Regulations
Cryptocurrency exchange regulations in India have grown increasingly strict. While technically legal, in 2018 the Reserve Bank of India (RBI) banned banks and any regulated financial institutions from “dealing with or settling virtual currencies.” On 14 Jan 2018, RBI confirmed that it had not issued any licenses or authorisations to any entity or company to operate a scheme or deal but had issued warnings about dealing in virtual currencies and introduced a requirement for firms to unwind or exit their positions. It also confirmed that new prohibitive regulations were planned. 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 and allowing exchanges to reopen.
Future Cryptocurrency Regulations
While there were signs in 2017 and 2018 that India was considering less prohibitive cryptocurrency regulations, recent reports indicate a change of course. In July 2019, an interministerial committee recommended a blanket ban on cryptocurrencies except for a proposed official digital currency. The leaked, alleged draft bill suggested prison time for those who “mine, generate, hold, sell, deal in, issue, transfer, dispose of, or use cryptocurrency in the territory of India.” Although that draft bill did not make it to the parliament floor, India’s aversion to cryptocurrency continues and, in late 2020, leaks suggested that the government was drafting a new bill to ban cryptocurrency trading. While it has come down hard on cryptocurrency from a regulatory perspective, India’s government has stated that it is open to exploring the potential of blockchain technology to enhance its financial services industry.
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