Cryptocurrency is a digital currency that does not rely on banks for transaction rather uses cryptography. To the common knowledge it is a peer to peer transaction as it has no jurisdiction within which the transaction should be made. Unlike physical money being exchanged in real world, cryptocurrency transaction takes place only in cyberspace and payments exists as digital entries. Cryptocurrency got its name as it uses encryption to verify transaction. While bitcoin was the first found cryptocurrency, the one of prominent benefits associated with its usage is that it maintains the anonymity of the parties involving in the transaction. On the other hand, the benefit itself is being a shortcoming, as it could be a conduit of black money and with which the terrorism would be facilitated through anonymous funding. By acknowledging the growth of cryptocurrency market since 2008, Indian government has started levying tax on cryptocurrency yet clarified that mere imposition of tax on cryptocurrency does not affirm its legality. Nevertheless, in the case of Internet and Mobile Association of India v. RBI, Apex court has squashed the circular that forbids the regulated financial institutions from funding businesses engaged in exchanging or trading of cryptocurrency as it is violating Article 19(1) (g) of Indian constitution. It is creating the quandary about the legality of cryptocurrency in India.
Legality of Cryptocurrency
Conceptually, the decentralized block chain is the technology on which the cryptocurrency is based on. Owing to the popularity of cryptocurrency in western countries, between 2012 and 2018 India has entered into trend of investing in cryptocurrency. Thereon, the controversy on cryptocurrency is also being at its zenith. As far as stand has taken by the India is concerned, various actions were taken by the government of India, which conveys the authority’s intention to legalize cryptocurrency.
Substantially, it was prescribed through the schedule III of companies Act 2013 that all companies are required to disclose their investment and profit or loss associated with such transaction in cryptocurrency. Withal, the digital currency holders are required to declare the number of holdings, details of deposits and advances acquired from others pertaining to trading and investment in crypto currency.
Though Income Tax Act does not differentiate between legally and illegally earned incomes, through imposing 30% tax on any income from transfer of any virtual digital asset. And it was announced by the Indian finance minister in union budget 2022 that tax deduction at source at the rate of 1% has been proposed for transactions involving cryptocurrency. It is pertinent to note that it was stated that impose of tax on cryptocurrency does not imply its legality. However, the aforementioned are construed to be the regulation conditions to keep tabs on the flow of virtual currency and its trade in India. In pursuance of the judgment rendered by the presiding judges viz. Justice Rohinton Nariman, Justice Aniruddha Bose, and Justice V. Ramasubramaniann in the mentioned case, which removes the ban on cryptocurrency imposed by RBI, Indian government is trying to regulate cryptocurrency rather declaring it as illegal.
In broad sense, there are three way to transact cryptocurrency viz. centralised exchanges, decentralized exchange and peer to peer exchange. Even if government consider banning cryptocurrency after comprehending the public warning on cryptocurrency by the RBI, it may impose a ban on private cryptocurrencies as it does not require any compliances with KYC norms and revelation of identity of the parties. Yet, government should look after the digital wallets created on decentralized exchange as which are not traceable and could be an impediment in execute the ban.
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B.A., B.L., (Hons) IPDP., (London)
Pgd IPR., Pgd Cyber Law., Msc., (IT)
CCI., CFA., IPCL.,
Advocate, Madras High Court
Karthikeyan, is a renowned cyber law expert, who is also the Managing Partner of Law Office of Karthikeyan, a reputed law firm based in Chennai.More About Us