Is Cryptocurrency Legal in India in 2022? Everything You Need to Know about Crypto

While crypto is termed as the currency of the third millennium, the confusion related to it is never ending. The legal position of crypto including its classification is still confusing due to the inherent nature of blockchain currency.

The purpose of this article is to answer the question “Is cryptocurrency legal in India” We have compiled and interpreted all the existing laws, government notifications, RBI guidelines and supreme court judgements related to Cryptocurrency to analyze the legal position of cryptocurrency in India.

At the end, we will also discuss the status of crypto in countries like the USA, China, and the rest of Europe. Before we jump directly into the legal concept, we must understand what qualifies as cryptocurrency.

What is Cryptocurrency?

Cryptocurrency is a digital or virtual currency that uses blockchain technology for security. A cryptocurrency is impossible to tamper with because of the distributed ledger technology or DLT.

The defining feature of cryptocurrency is its organic nature. It is not issued by any central authority and is free from government interference or manipulation.

Why Cryptocurrency and Crypto Transactions Are Problem for the Government?

Cryptocurrencies by nature have many advantages over any other form of currency or digital assets. However, there are a few constraints in legalizing cryptocurrencies.

• Difficult to Trace: Cryptocurrencies are difficult to trace as they can be transferred without any intermediate party or authority. Once the transaction is done, it becomes difficult to reverse it or track the sender or receiver. It could be used for conducting illegal transactions, money laundering, hiding assets, tax evasion and much more.
• Unregulated: The decentralized and unregulated nature of cryptocurrency transactions makes it difficult for the government to keep track of them. This also means that there is no authority to whom the users can go in case of any issues.
• High Volatility: The price of cryptocurrencies is highly volatile and can fluctuate widely in a short period. This makes crypto an unsuitable investment specially for Indian people who tend to invest heavily with the trend.
• Fraud/Scams: Since cryptocurrency is a new market, people are not aware of its security features completely, making it prone to fraud and scam. Many investors and traders have lost a lot of money after being duped by unscrupulous people in the crypto industry.

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Timeline of Cryptocurrency in India with Rules and Judgements

Cryptocurrency in India has a short but tumultuous history. Here is the complete flow of events around Cryptocurrency in India with different judgments and regulations related to cryptocurrency transactions.

2009

• The first cryptocurrency was created in 2009 by Satoshi Nakamoto, the creator of Bitcoin.

2010

• The first Commercial Transaction takes place using Bitcoin

2013

• Unicoin launches, allowing Indians to buy/sell cryptocurrency (bitcoin) for the first time.
• RBI issues warning against the use of digital blockchain currency.
• Bitcoin prices soar up to ₹54,000 (2013), gaining attraction of Indian investors and traders.

2017

• Bitcoin Grows from approx. ₹1,60,000 to a high of ₹12,80,000
• Google searches in India for Bitcoin grows 20 times
• Finance Ministry and RBI warns public against Bitcoin and other cryptocurrencies
• A committee including RBI, Finance Ministry and SEBI to look over the regulatory requirement related to crypto
• Two PIL is filed in Supreme Court of India against crypto transactions

April 2018

• RBI bans all the financial institutions from dealing with entities transacting in cryptocurrency.
• RBI effectively puts an end to the entire asset class of Cryptocurrency

May 2018

• Crypto exchanges in India approach supreme court, filing a plea to reverse RBI decisions of banning Cryptocurrency.

March 2020

• Supreme Court overturns RBI decision of banning Cryptocurrency. 

February 2022

• FM introduces the provision in Union Budget 200 to tax all VDA’s including Cryptocurrency @ 30% rate as Capital Gains.

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The Legality of Cryptocurrency in India After Union Budget 2022

There has been multiple discussion in the parliament, courts, RBI, and IT department related to the stand of government of India on the growing crypto trade and investment.

Indian government has accepted the fact that VDAs are the undeniable fate of Indian economy and IT sector, and it cannot be banned or termed illegal. Therefore, the FM imposed a 30% flat tax rates on all cryptocurrency gains in India in the Union Budget 2022.

Although, the Union Budget for the financial year 2022 has brought good news for cryptocurrency investors in India, cryptocurrency is way behind in terms of legalization. Merely the taxation of cryptocurrency gains can’t be considered as legitimization.

The bill is yet to be introduced in parliament regarding cryptocurrency and crypto transactions, in which Government will clear its stand on the legal status of Cryptocurrency in India.

Is Cryptocurrency a Legal Tender in India?

We need to understand the concept of Legal Tender first.

A legal tender is a medium of exchange that can be used to settle a debt or conduct transactions. The legal tender status of a currency allows it to be used in transactions and for the settlement of debts. Currencies that have legal tender status are backed by the government that issues them. This means that the government will accept the currency as payment for taxes and other debts owed to the government.

 Although, investors and traders in India can trade and invest in cryptocurrencies, such as Bitcoin freely, it’s not a legal tender. Therefore, using cryptocurrency like bitcoin to settle payments for exchange of goods and services, payment of government dues or settling transactions is not recognized and might have legal implications.

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Legal Status of Cryptocurrency Around the World

Different countries have taken different approaches to the legal status of cryptocurrency. Broadly, the legal status of Crypto could be categorized into four types:

• Completely Legal and Accepted as Legal Tender: El Salvador and Central African Republic are the only two countries to accept Bitcoin as legal tender.
• Legal: More than 131 countries including the US, UK and other European nations have given cryptocurrencies a legal status for investment, trade, and payments. All these countries are yet to introduce comprehensive laws and regulations to curb their use in CFT/AML.
• Legal but Banking Ban: Although users can trade cryptocurrency, financial institutions are restricted from conducting Crypto Transactions. 15 countries including Canada and UAE have this legal status on cryptocurrency.
• Illegal: Some countries including China, Nepal, and Egypt have completely banned any kind of transaction in cryptocurrency. People found trading, holding, or investing in cryptocurrencies can be fined or jailed in these countries.

Here are some major countries with their legal stand on Cryptocurrency

• United States: US is leading from the front when it comes to Cryptocurrency acceptance. The treasure of US has defined Crypto as convertible currency and the IRS has categorized cryptocurrency as property for taxation purposes.
• European Union: The European Union has not taken a unified approach to the legal status of cryptocurrency. Some member states, such as Germany and France, have given cryptocurrency legal status for investment and trade purposes. Overall, most of the countries under the European Union have recognized cryptocurrency legal with multiple regulations.
• Canada: The Canadian government has classified cryptocurrency as a commodity for taxation purposes. Financial institutions in Canada are prohibited from conducting transactions in cryptocurrency.
• China: The Chinese government has banned all forms of transaction in cryptocurrency. People found trading, holding, or investing cryptocurrencies are fined or jailed in China.

In general, there is no one answer to the question of whether cryptocurrency is legal. The legality of cryptocurrency depends on the laws of the specific country in which you are doing business.

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The Future of Cryptocurrency, NFT and Other Virtual Digital Assets in India

The legal status of cryptocurrency in India is inclining towards an unsettling acceptance. While the RBI, Finance ministry and IT department are completely on backfoot with regularization and tracking of cryptocurrencies, the Supreme Court of India restricted government from banning the entire class of assets.

The Reserve Bank of India (RBI) has issued several warnings about the risks associated with investing in cryptocurrency and has made it clear that it does not consider crypto to be legal tender. However, the RBI has also said that it is investigating the possibility of using blockchain technology for financial transactions. And while the Indian government has not yet put forward any concrete plan or regulations regarding cryptocurrency, it seems likely that they will eventually do so.

In the meantime, investors and traders are free to buy and sell cryptocurrencies like Bitcoin and Dogecoin freely in India. However, using cryptocurrency to settle payments for goods and services, or to pay government dues, could have legal implications. 

Looking further ahead, it’s difficult to say exactly what the future holds for cryptocurrency in India. It seems probable that the government will eventually regulate – and treat cryptocurrency and other VDAs as capital assets or property. However, the acceptance of cryptocurrency as legal tender seems unlikely.

Synopsis: Is Cryptocurrency Legal in India in 2022

• Supreme court has allowed citizens to buy/sell cryptocurrencies like Bitcoin, Dogecoin, etc. through crypto exchanges
• Citizens can buy/sell cryptocurrencies as trade and investment
• A flat 30% tax rate is applicable on income made from Cryptocurrency and other VDA’s
• Any use of cryptocurrency to conduct illegal activities, evading tax or money laundering is punishable
• Although in process, currently there is no bill, act, Law, or Decree for crypto transaction regulation in India
• Use of Cryptocurrency to make or receive payment from other countries could be Illegal as Foreign Exchange Management Act, 1999 doesn’t recognize Cryptocurrency.

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