“Taxing cryptocurrencies does not give legal status in the country,” said finance minister Nirmala Sitharaman. From an outright ban on cryptocurrencies in 2016 to an upcoming bill of regulation, the government’s stance on digital assets has changed considerably over the past few years.
Due to the rapid development of information and communication technologies, many activities in our daily life have been merged online and they become more flexible and more efficient. A huge growth in the number of online users has activated virtual word concepts and created a new phenomenon which is cryptocurrency to facilitate financial activities such as buying, selling, and trading. The use of virtual currency has become widespread in many different systems in recent years. Virtual money is not fully controlled and regulated hence most of the countries have not admitted this currency in their economic activities. This paper investigates cryptocurrency’s present legality as well as the government moves impact on this currency.
Imposing taxes on virtual currency provides them with legal status in India or not. What are the further steps taken by RBI on this and what are the opinions of the people of India regarding whether should cryptocurrency be legalized in India or not?
Introduction
Today’s economies are all money economies because all economies have accepted certain currencies as a medium of exchange. Nowadays many countries in the world have focused towards digital currency and transactions. Even if someone does not want to regulate their currencies and transactions, this brought greater innovation in a new currency which is cryptocurrency.
One of the most advanced, ambiguities, regulation-free currency. The number of cryptocurrencies is increasing on a regular basis. There are over 4000 cryptocurrencies as of early 2021 but it is believed that the top 20 currencies hold a market share up to 90%. Earlier people used to invest in gold as an asset to protect their money against inflation. Over a couple of years. Most people found Bitcoin to be a better alternative asset. Even institutions are converting their cash to bitcoins to protect their finances against inflation. So due to increasing trends or demand, it is very important to know the status of the legality of cryptocurrency in the eyes of the legislation.
Objective
- The objective of this paper is to find out the exact status of cryptocurrency in light of legislation and literature review.
- This paper is trying to find whether cryptocurrency is currency, Goods or Service.
What Is Cryptocurrency?
Cryptocurrency is any form of currency that exists digitally or virtually and uses cryptography to secure transactions. Cryptocurrencies don’t have a central issuing or regulating authority, instead using a decentralized system, which means they are not issued by the government or any other financial institutions to record transactions and issue new units.
How do cryptocurrencies work?
Cryptocurrencies are not controlled by the government or central regulatory authorities. As a concept, cryptocurrency works outside of the banking system using different brands or types of coins- Bitcoin being the major player.
Cryptocurrency works a lot like Paytm or any other online transaction app, except you change digital capital for goods and services rather than physical money. To make a trade with cryptocurrency, you must shift currency with a peer using a digital wallet known as a cryptocurrency wallet.
A cryptocurrency wallet is a software that allows you to transfer money from one account to another. To complete a sale, you take access to a word, known as a private key. The private key is the most important tool in cryptocurrency. You can hold multiple keys and enjoy all the finances transferred to those keys.
Cryptocurrency mining is the process needed to corroborate trades. It involves a massive volume of calculating power and complicated algorithms, but those who are successful at cracking problems through mining can earn bonus coins, commemoratives, or sale freights.
Stand Of Reserve Bank Of India
The RBI has always advised about the potential risks involved with the use of cryptocurrency. But in 2018 Reserve Bank took a firm a firm step by banning its regulated entities from supporting transactions related to cryptocurrency and providing any services dealing with the same. This ban is seen as bad for cryptocurrency holders and investors & soon after petitions were filed in the honourable supreme court of India.
Reasons For Ban By The RBI
The Reserve Bank is responsible for the financial stability and credit system in India. It also manages foreign exchanges under the foreign exchange management act, of 1999. There are a significant number of scams related to cryptocurrencies in the market. These scams are raised further by demonetization in India. Ponzi schemes are also one of the reasons for this banking ban. Ponzi schemes are basically scams in which interest is paid to the earlier investor with the money invested by the later investors.
Government Schemes Regarding Cryptocurrency
Stand of the Indian government had been pretty clear that they do not want cryptocurrency as a legal tender. Moreover, they want to discourage their citizens from investing and dealing with the same. There was a banking ban on cryptocurrencies from July 2018 to March 2020. On March 4, the supreme court lifted the ban and through that instance, the government should have understood that they cannot put an absolute restriction on cryptocurrencies.
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The committee was formed to study the use of cryptocurrency and the precautions, measures, or regulations to be taken. The committee sent a report on 28 February 2019 recommending the prohibition of all private cryptocurrencies, except any virtual currencies issued by the state.
The cryptocurrency and regulation of the Official Digital Currency Bill,2021(ODC Bill) has been proposed with the target of making a facilitative framework for the creation of the official digital currency to be issued by the Federal Reserve Bank of India (RBI) and prohibit all private cryptocurrencies in India. However, it will support and use underlying cryptocurrency technologies. If the proposed creation of digital currency happens, the RBI will join other central banks including that of China, where it’s electronic yuan.
Present Situation Of Cryptocurrency In India
It is interesting to note that currently there is no law which bans cryptocurrency in India. It is perfectly legal to own and trade in cryptocurrency. There had been a ban on banking entities that do not support crypto transactions but the circular of RBI had been set aside on March 4 by the supreme court and there is no legal regulation or legal framework guiding cryptocurrency up to this day. It should also be noted that it is not a legal tender.
Legal tender is mentioned in Section 26 of the Reserve Bank of India Act,1934 as: … guaranteed by the central bank of India. So, to declare cryptocurrency as legal tender, the government will have to notify it in the official Gazette notification but until then it cannot be legally enforced.
Surveys
According to the research, 71% of Indians have low or zero trust in cryptocurrencies while over one in two Indians do not want cryptocurrencies to be legalized in India but for RBI to roll out India’s own digital currencies.
The survey showed that 54% do not want the government to legalize cryptocurrencies but instead to tax them like digital assets held in a foreign country.
The level of trust Indians have in cryptocurrency
According to the research by the Economic Times, it can be observed that 49% of the Indian people do not trust in investing in the cryptocurrency, 22% of the Indians have low trust, and only 1% of the Indian people have trust in the cryptocurrencies. About 87% of the respondents do not have anyone in trading or investments. But the figures show that the number of investments has been exaggerated in India since there is no official data of investment in cryptocurrency so we can only assume the given data on the basis of respondents of the people in India.
What Can Be Done
India needs a regulatory framework just like other countries need. It is no secret that a lot of Indian investors are there who are investing in cryptocurrency and waiting for their opportunity, but the government does not want to continue. The government needs to acknowledge that this could be the tool the Indian economy was waiting for. Prima facie the government is only looking at the negative side of cryptocurrency that it could be used for illicit activities like money laundering and terror funding but it can control these drawbacks by bringing a framework to control the use of cryptocurrency.
What Could Be Expected From The Future For Indian Crypto Investors
The government’s stand is clear they do not want decentralized currency. RBI is also looking to prohibit the use of cryptocurrency without looking at alternatives to regulate and control the cryptocurrency and its transactions. But emphasis should also be given on the interview of Finance Minister Mrs. Nirmala Sitharaman in which she said from our side, we are very clear that we are not shutting off all options, to India News Director Rahul Kanwal.
Conclusion
Change is the only thing constant in human life. From barter systems to rupees and from physical transactions to online money transactions there has been an update in the form of money and in the form of interface of their transactions, on which the parties can carry on their business. And it’s a time for cryptocurrency as it is seen as a safe transaction method and a promising investment.
In the upcoming years, the government may try to ban unauthorized cryptocurrencies after launching its own currency, but in the long term, it will have to make way for the upcoming surge of crypto investors.
References
- Professor of MIS, Peter D. DeVries, “An Analysis of Cryptocurrency, Bitcoin, and the Future.” International Journal of Business Management and Commerce, Vol. 1 No. 2; September 2016
- Kelly, B. (2014). The Bitcoin Big Bang: How Alternative Currencies Are About to Change the World.
- Anu Bala, Cryptocurrency and its scope in India, Unique Paper ID: 153630
- Dr Mubarak and Hosmani Manjunath, “A study on Cryptocurrency in India”, International Journal of Research and Analytical Reviews, E-ISSN 2348-1269. P- ISSN 2349-5138).
- Shailak Jani, The Growth of Cryptocurrency in India: Its Challenges & Potential Impacts on Legislation.
- Shailak Jani, Scope (2017, December). Scope for Bitcoins in India. Retrieved from https://www.researchgate.net/publication/321780780_Scope_for_Bitcoins_in_India
- Wadhawa, N. (2018, January 4). Taxing cryptocurrencies in India. Retrieved from https://www.thehindubusinessline.com/opinion/taxing-cryptocurrencies-in- india/article10012267.ece
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