Legality of cryptocurrency in India
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The document discusses the legality of cryptocurrency in India. It provides an overview of cryptocurrency and important ones like Bitcoin. It outlines the Indian government's stance, including a past ban on cryptocurrency trading by the Reserve Bank of India. The legality of cryptocurrency in India remains unclear as the government works to establish a legal framework, but some existing laws around payments and securities may apply.
Legality of cryptocurrency in India
- 1. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com Madhumitha R LEGALITY OF CRYPTOCURRENCY IN INDIA
- 2. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com What is Cryptocurrency? Cryptocurrency is a digital asset using cryptography which works as a medium of exchange to ensure safe and secure financial transactions, to control creation of any additional units and to verify the transfer of assets. Cryptocurrency uses decentralized control, in comparison to the centralized digital currency and banking systems. This decentralized control of cryptocurrency works using a distributed ledger technology (DLT), generally a Blockchain, which acts as a public financial transaction database.
- 3. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com Bitcoin Bitcoin was the first released cryptocurrency. It was invented by a group known as Santoshi Nakamoto and released as an open-source software in 2009. Bitcoin does not operate via a central bank nor a single administrator. Transactions made through Bitcoin are verified using nodes through cryptography and recorded in the Blockchain. Bitcoins are created as a reward for mining, a record-keeping service done through the use of computer processing power. They can be exchanged for other currencies, products or services. As per a 2017 research produced by Cambridge University, there were nearly 2.0-5.8 million unique users who used a cryptocurrency wallet, mostly Bitcoin. However, in recent times, Bitcoin has been criticized for its use in illegal transactions, its high electricity consumption, price volatility and thefts from exchanges. Bitcoin is mainly used as an investment, although several agencies have issued investor warning alerts about Bitcoin.
- 4. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com Other Important Cryptocurrencies • Litecoin (LTC) • Ethereum (ETH) • Zcash (ZEC) • Dash (DASH) • Ripple (XRP) • Monero (XMR) • Bitcoin Cash (BCH) • NEO (NEO) • Cardano (ADA) • EOS (EOS)
- 5. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com Former Finance Minister of India, Arun Jaitley stated in 2018 that the Government will ensure to discontinue the use of Bitcoin and other virtual currencies in India for criminal uses. He reiterated that India does not recognize Bitcoin as a legal tender and will instead encourage Blockchain technology in payment systems. After this announcement, the Secretary of Economic Affairs, SC Garg said that the government would set up a panel to examine trading of crypto assets in unregulated exchanges. After the Ex-Minister’s announcement, there was a fall in Bitcoin prices, which was attributed to a lack of awareness about Bitcoin itself. In India, people are not yet entirely aware of Bitcoin and do not understand it. Regardless, India’s cryptocurrency trading volumes have been on the rise. In early 2018, the Reserve Bank of India, announced a ban on the sale or purchase of cryptocurrencies for entities regulated by the RBI. This regulation prohibited trade of cryptocurrencies on domestic exchanges and existing exchanges until 6 July 2018 had to wind down. Cryptocurrency in India
- 6. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com Although currently, there is a lack of clarity over the tax status of cryptocurrencies, the Chairman of the Central Board of Direct Taxation has stated that anyone making profits from Bitcoin transaction shall be liable to pay taxes for the same. Other Income Tax Department sources suggest that profits out of cryptocurrency should be taxed as capital gains. In 2019, a petition was filed with the Supreme Court, challenging the legality of cryptocurrencies and seeking a direction or order restraining their transaction. With India’s leading cryptocurrency exchanges such as Zebpay, Unocoin, Coinsecure, Coinome and Bitxoxo among others reporting a marked increase in user interest every day, IAMAI has been focusing on increasing user awareness outreach programs through educational videos and reading material. In addition, IAMAI is also working on putting together an online course using input from industry experts and Bitcoin exchanges as well as developing a self-assessment test. Cryptocurrency in India
- 7. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com Blockchain technology gained prominence in India with the emergence of Bitcoin. While the legality of cryptocurrencies is still debatable in India, technological companies are shifting their focus to the use of blockchain technology. Indian banks have also been experimenting with blockchain technology by developing Proof-of- Concept projects. However, the concept of DLT is extending beyond the financial services sector. It is also being implemented in property transactions. Property transactions are done on paper and not updated often, leading to property disputes. This is where blockchain technology shall play an important role. With land documents being stored on a distributed ledger, it is not possible to tamper with them. The growth of blockchain technology is utility based and is seen to be disrupting the way things were done on the internet in the past. Cryptocurrency in India
- 8. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com While the Indian Government is currently working on drafting the elgal framework specifically for cryptocurrency, several existing laws may apply to the legality of cryptocurrencies in India. 1. Payment & Settlement Systems Act, 2007 This legislation gives the RBI the power to certify any kind of pre-paid payment instrument. The RBI has defined ”Pre-paid Payment Instrument” as payment instruments that facilitate purchase of goods and services against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holders by cash, by debit to a bank account, or by credit card. Now, upon comparison with cryptocurrency, it is seen that virtual currency is not stable and keeps changing on a regular basis. Further, it may or may not be accepted as a means to facilitate a purchase of goods and services. Since it does not fulfil the requisites of a ‘Pre-paid Payment Instrument’, it cannot be categorized as such, under the purview of the Payment and Settlement Systems Act, 2007. Position of Cryptocurrency under the Indian Legislation
- 9. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com 2. Securities Contracts (Regulation) Act, 1955 After a close and critical analysis of the provisions under Section 2(h), it is seen that cryptocurrencies do not fall within this Section. The only means by which a cryptocurrency can be included within the term “securities” is by using the sub-clause (ii)(a), which grants the Central Government the authority to declare certain instruments as securities. But, as the situation stands, the Central Government does not see it as legal tender nor has it been given any due recognition and, thus, cannot be used as a part of the aforesaid Act as well. 3. Copyright Act, 1957 The Copyright Act, 1957 can be co-related with cryptocurrency in the manner it defines a “Computer Programme”. As per section 2(ffc), a “computer programme” is a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result. If cryptocurrency is analyzed in a broad manner, then the definition stated above, which includes a set of instructions expressed in codes or any form will be sufficient enough to bring virtual currencies within its purview. Position of Cryptocurrency under the Indian Legislation
- 10. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com 4. Reserve Bank of India Act, 1934 The only manner for inclusion of cryptocurrency within the sphere of the RBI Act, 1934 is upon its scrutiny with respect to the definition of “derivative”. A cryptocurrency fulfils the first part of the definition, coming under the term instrument and having its value derived from a change in combination of several factors. But the factors mentioned in the definition have no bearing upon the value of a cryptocurrency. Its value goes higher upon greater demand for it, along with other factors such as its recognition; it being declared illegal will also affect its value. Hence, only if it is interpreted under the category of a variable of like nature, will the RBI Act deem to include cryptocurrency within its ambit under the definition of a “derivative”. 5. Negotiable Instruments Act, 1881 The Act defines a negotiable instrument under as a promissory note, bill of exchange or a cheque payable either to order or to bearer, under Section 13. On a careful interpretation of the instruments given under Section 13, it is clear that a cryptocurrency does not have the characteristics to be included within a promissory note, bill of exchange and a cheque. And, thus, its specifications are not sufficient to be included under the ambit of the said Act. Position of Cryptocurrency under the Indian Legislation
- 11. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com 6. Foreign Exchange Management Act, 1999 (FEMA) None of the Indian statutes interpret or define virtual currency and thus, to evaluate the status of cryptocurrency, the definition of “currency” is to be looked at. Section 2(h) of the Act defines the term “currency” as follows: “Currency” includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank. On a careful perusal of the aforesaid, it is clear that cryptocurrencies do not fit within any of the instruments in the given definition, but it does not exclude the possibility of the same being notified as currency by the Reserve Bank. But, until that happens, the situation has to be viewed from the fact that Japan has declared Bitcoin as a legal tender in its country and thus, any currency other than the Indian one will have to be considered as “Foreign Currency” under the FEMA and will have to comply with the rules and guidelines set under it. Position of Cryptocurrency under the Indian Legislation
- 12. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com 7. Information Technology Act, 2000 The Information Technology Act has a term called asymmetric crypto system within its sphere. The term ”asymmetric crypto system” has been defined under Section 2(f) of the Act as a system of a secure key pair consisting of a private key for creating a digital signature and a public key to verify the digital signature. Now, the system of cryptocurrencies functions through the issuance of a private key to each owner and holder of a cryptocurrency. Further, cryptocurrency can be categorized in two forms: 1. A symmetric-key system which uses a single key that the sender and recipient both have. 2. A public-key system which uses two keys, i.e., a public key that is known to everyone and a private key which only the recipient of messages uses. From the aforementioned, it is comprehensible that virtual currencies can be assessed and used as a part of the IT Act under the definition of “Asymmetric Crypto System”. Position of Cryptocurrency under the Indian Legislation
- 13. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com 8. General Clauses Act, 1897 The General Clauses Act defines a movable property under Section 3(36). This Section states the term to include a property of every description, except immovable property. Now, immovable property has been defined under Section 3(26) and shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. As has been stated above, a cryptocurrency has the requisites to fit within the definition of a computer programme, but, the same cannot be categorized under the definition of an immovable property. But, at the same time, it clearly seems good enough to be included under the definition and be treated as a movable property within the General Clauses Act. Position of Cryptocurrency under the Indian Legislation
- 14. CHENNAI III Floor, ‘Creative Enclave’, 148-150, Luz Church Road, Mylapore, Chennai - 600 004. Tel: +91 - 44 - 24984821 BANGALORE Suite 920, Level 9, Raheja Towers, 26-27, M G Road, Bangalore - 560 001. Tel: +91 - 80 - 65462400 COIMBATORE #1533, Trichy Road, Coimbatore – 641018. Tel: +91 - 422 - 6552921 HYDERABAD Flat No. A-701, Brindavan Apartments, Niloufer Hospital Road, Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009 COCHIN Suite 49, 8th Floor, Centre A, Alapatt Heritage Building, MG Road, Cochin – 682035 Tel: +91 - 484 - 6506216 EMAIL info@altacit.com WEBSITE www.altacit.com Conclusion The use of cryptocurrency in India is currently not illegal but is unregulated. To prohibit cryptocurrency would require a closer scrutiny. Cryptocurrency has a huge potential for growth. Thank you