Is Bitcoin Legal In India | Updated in July 2017

Are you the one who trades in cryptocurrency? Do you want to buy Bitcoin but confused if it is legal or not? Are you looking for an answer on Is Bitcoin Legal in India? If yes, then you are on the right article!

Cryptocurrency industry is in an ever evolving state and whenever we talk about cryptocurrencies, Bitcoin is the first name that comes to our minds. However, ever since Bitcoin started to become popular, financial regulators always tried to restrict and ban this cryptocurrency.

However, with time, they started to consider bitcoin regulation instead of banning it. This seems to be the sensible direction to go. Still, this is not very easy and the road to Bitcoin regulation has faced several challenges.

Is Bitcoin Legal in India

However, with time, they started to consider bitcoin regulation instead of banning it. This seems to be the sensible direction to go. Still, this is not very easy and the road to Bitcoin regulation has faced several challenges.

Let us now see a couple of potential roadblocks that arise in Bitcoin regulation:

The Challenges in Regulating Bitcoin

The major problem in implementing bitcoin regulation is that it goes against the primary feature of cryptocurrencies i.e. anonymity. The structure of blockchain, the bitcoin’s technology, leaves the parties that are involved anonymously by only assigning a randomly generated address and key. It, therefore, makes bitcoin regulation difficult because it’s not possiblae to know who is involved in a transaction.

There are several economies such as Japan and Russia that move to legalize the use of Bitcoins, however, India despite being on the cusp of a digital revolution is yet to officially recognize the cryptocurrency culture.

Bitcoin Legality – Current Status in India

In the beginning, the Reserve Bank of India which is the central bank of India, that regulates Indian rupee, had cautioned users, holders and traders of the use of these cryptocurrencies, including Bitcoins. Therefore, people used to consider it as scam earlier. However, those misconceptions have been cleared out now. Also, the RBI too hasn’t unequivocally banned Bitcoins in the country.

At present as well, the creation, trading and usage of these cryptocurrencies, including Bitcoins, as a medium for payment are not authorised by any monetary authority or central bank. There is is still no regulatory approvals, registration or authorisation stated to have been obtained by the entities responsible for carrying on such activities.

This has become the trending news these days that the Government of India should soon decide upon the future of Bitcoin business in India. Following a quote of recent news reports a member of parliament heard calling Bitcoin a “Ponzi scheme” often requesting the finance ministry to ban the cryptocurrency in the country. Therefore, an inter-ministerial committee has been set up, in order to discuss the legality of cryptocurrencies.

News carried by few Indian media outlets,  few days after raising concerns amongst the Bitcoin community members, that the committee would be filing its official response regarding the legality of cryptocurrencies in India on April 20, 2017. However, nothing concrete has been done as of now.

At the same time, the Bitcoin community in India, along with the India’s cryptocurrency business association — “Digital Asset and Blockchain Foundation of India” have started an online petition urging the inter-ministerial committee to instate a legal status for this digital currency. The online petition has been addressed to the country’s Finance Minister, Arun Jaitley, along with Governor of RBI Urjit Patel, and the Joint Secretary at the Ministry of Finance Selvakumar who received around 12,000 signatures.

While speculating the outcome of the inter-ministerial committee’s report, some believe that it might take longer to them to come to a conclusion regarding the cryptocurrency’s legality. However, even in a worst-case scenario, if the committee and also the government indeed declares Bitcoin is illegal, then it might force the country’s cryptocurrency businesses to rethink their products and service offerings or shut the doors altogether.

Clearing the instincts about the recent statements made by politicians and others about the potential outcome of the government’s procedures, Jaideep Reddy – a technology lawyer representing Digital Asset and Blockchain Foundation of India said, “The Minister of State’s statement in the Rajya Sabha deems to be widely misinterpreted. He clearly indicated that the use of virtual currency for illegal purposes is illegal and not that Bitcoin is illegal. It is not likely that the government, while promoting technology, innovation and financial inclusion, will settle to ban of bitcoin as such. No big economy has done this. However, if there is a ban, then all parties will have to comply with the same – subject to their remedies under law.”

Here, he referred to the Minister of State for Finance, Arjun Ram Meghwal, who earlier stated that the RBI doesn’t authorize virtual currencies like Bitcoin and its usage could potentially result in the breach of anti-money laundering provisions.

Also, Meghwal pointed towards the position of the RBI “that it has not given any licence to any entity to operate such schemes or deal with Bitcoin or any virtual currency”. Prominently it stated that any holder, user, trader or investor dealing with Crypto Currencies will be doing so at their own risk.”

Further, Meghwal cleared that only those who are using Bitcoin for illegal activities should worry. The absence of counterparties in the usage of cryptocurrencies “including Bitcoins, for illegal activities in anonymous systems could subject the users to unintentional breaches of anti-money laundering while combating the financing of terrorism (AML/CFT) laws.”

All this makes it very clear that it has been years, and the answers remain the same. The RBI is still “determining” the Bitcoin situation in India. However, as per a recent CNBC India report, a joint committee of finance ministry officials, NITI Aayog, IT ministry officials, and RBI officials, may be moving closer to legalising virtual currencies in India.

Consequences of Legalizing Bitcoin in India

If Bitcoins are legalized in India, the following consequences might happen:

  • Bitcoins will fall under the notion of RBI’s 1934 Act.
  • Bitcoin investors will be taxed.
  • RBI will have to issue guidelines regarding investment and purchase of Bitcoins.
  • If any foreign payments are to be made through Bitcoins, it would fall under the notion of FEMA Act.
  • Returns from investment in Bitcoins will be taxed.

Bitcoin Trading In India

Bitcoin trade analyst, Chris Burniske, mentioned that trades from India accounted for 10% of overall global cryptocurrency’s trade in May 2017.

digital india

He tweeted a chart tracking cryptocurrency trades wherein India accounted for 16,754.76  Bitcoins by trade volume. It has also been ranked 4th  in the Bitcoin cryptocurrency trading market.

What about Bitcoin and taxes?

Bitcoin is definitely not a fiat currency with legal tender status in any jurisdiction. This is often a tax liability that accrues, regardless of the medium used. There is a wide variety of legislations across different jurisdictions across the globe which could cause sales, income, payroll, capital gains or other form of tax liabilities to arise with Bitcoin.

Can Bitcoin be used for illegal activities?

While Bitcoins can bring significant innovation in payment system and the benefits of such innovation are often considered to be far beyond their potential drawbacks. However, Bitcoin being real money, can always be used both for legal and illegal purposes.

Although, Bitcoin is designed to be a big step forward towards making money more secure and could also act as a significant protection against several forms of financial crime. For instance, bitcoins are totally impossible to counterfeit. Bitcoin transactions being irreversible, are immune to fraudulent chargebacks. Also, Bitcoin allows security against theft and loss by using some strong and useful mechanisms like backups, encryption and multiple signatures.

Still, there arises some concerns that Bitcoins could be attractive to criminals because it can be used to make private and irreversible payments. However, these features also exist with cash and wire transfer, that are widely used and well-established. The use of Bitcoins will obviously be subjected to similar regulations that are already in place inside existing financial systems and Bitcoins are not likely to prevent criminal investigations from being conducted. Generally, it is common for critical breakthroughs to be perceived as being controversial before their benefits are well understood. The Internet is a good example amongst several others to illustrate this.

Is Bitcoin Illegal In India

Bitcoins are not definitely illegal in India. For instance, Nishith Desai Associates, an eminent law firm of the country have announced several times that Bitcoins are legal under all existing laws in India.

Appended below is the link of the  white paper released by them:

Nishith Desai – Bitcoins Are Not Illegal In India

There is also an article posted by the Center for Internet and Society, India. This is the same organization that played a leading role in the last net neutrality fight in India.

Appended below is the link of the article:

Can Bitcoin Be Banned by the Indian Government?

Both these articles clearly state that bitcoins is not illegal in India.

Will Bitcoins be Legal In India

As per our personal thoughts, since Bitcoins are getting legalised in many countries across the globe; there arises a possibility that it will follow the same fate in India.

On April 20, 2017, Indian Bitcoin enthusiasts were experiencing a moment of joy. Probably because the news came that soon Indian government may perhaps recognize Bitcoins, monitor and regulate Bitcoin transactions and even levy tax on Bitcoins.

Now after looking at some positive outlook from higher authorities towards Bitcoin, the day is not far when Bitcoins will get a legal status in India.

Way Forward for Bitcoins in India

Bitcoin’s demand is rising day by day in India. People are now understanding the power that these cryptocurrencies could offer. Several investors are often adding Bitcoins to their portfolio. Also, after these positive news coming in, people in India will continue to invest in Bitcoins even more. The day is not far when Indians may perhaps rule the Bitcoin market.

From the PoV of Taxation, it is still a mystery. The government will give it’s decision about taxation once it gets recognized.

  • If an amount is earned by buying/ selling Bitcoins on regular basis, the income will be charged as – Profits and Gains from Business and Profession.
  • If any amount is earned by investing in Bitcoins for a longer period of time, the income will be charged under the head “Income from Capital Gains”

Additionally, Capital Gains are divided in two categories i.e. Long Term Capital Gains and Short Term Capital Gains each having a different rate of tax.

  • The income is charged under Long Term Capital Gains if investment done on any asset (except mutual funds/shares) is redeemed after twenty four months (previously it was thirty six months). For mutual funds or shares, the income will be taxed as Long Term Capital Gain if the investment is redeemed after twelve months.

Deciphering from above mentioned instances and information gathered, let’s see status of Bitcoin Legality in India in a nutshell:

  • As of now, Bitcoins are neither legal nor illegal in India. The government is yet to decide on its legality.
  • RBI have not stated anything concrete about Bitcoins.RBI do not have any rules/ regulations currently regarding Bitcoins.
  • As “DIGITAL INDIA” initiative launched by our Honorable Prime Minister, Narendra Modi , there are ongoing attempts to make India a digital economy. Maybe this is the great time for Bitcoins and other digital currencies to get legalized in India.

Thus, it can be inferred that Bitcoin is in that space where it is neither legal nor illegal, but unregulated. As per our knowledge, Bitcoin has not been made illegal by any legislation in most of the jurisdictions. However, Regulators across several jurisdictions are taking steps to provide individuals and businesses with certain rules on how to integrate this new technology with the formal and regulated financial system.

In a nutshell, while we can say that Bitcoins are the current strongest currency globally, outnumbering dollar, euro, pound, etc. Valued at around INR 168016.32, this digital currency is referred as “Virtual Gold”. This is considered by the cryptocurrency and tech enthusiasts as the next big wave, which if accepted, might remain as a permanent currency for the next 50 years.

So, I hope this artcile was good enough to give you some insights about Legalizing Bitcoin in India.

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