India is one of the largest economies in the world, and until last year, it was one of the fastest adopters of crypto; so its approach is watched very closely as it could impact global cryptocurrency regulation. As the Indian government works on establishing a regulatory framework for digital assets, recent events suggest that the upcoming crypto regulations could have a significant impact on the market. In this article, we will look at the tortuous journey of cryptos toward regulation.
Legalisation Of Crypto
The Centre's stance on cryptocurrency has evolved in recent years. In 2013, the Reserve Bank of India (RBI) issued a warning to individuals or businesses dealing with virtual currencies, and in 2017, it prohibited banks and other regulated institutions from providing services to cryptocurrency traders, effectively banning the purchase or sale of cryptocurrencies by Indian residents.
However, in March 2020, the Supreme Court overturned RBI's ban on cryptocurrency, officially legalising their use in the country. Since then, the Indian government has been considering the establishment of a cryptocurrency regulatory framework.
Union Budget Announcements
In the 2022 Union Budget, Finance Minister Nirmala Sitharaman proposed significant changes to the treatment of virtual assets, including cryptocurrencies.
The government formally classified digital assets as "virtual digital assets" for the first time, and announced a 1 per cent TDS and a flat 30 per cent income tax on the transfer of "crypto-assets" in the proposed tax framework.
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These changes marked a significant step towards providing clarity to investors and entrepreneurs dealing with digital assets in India and regulating the cryptocurrency market.
In the 2023 Budget, provisions were amended to include traders transacting in foreign exchanges and address non-payment of taxes.
The new act imposes a penalty equal to the unpaid TDS as well as a possible jail term of up to six months for non-compliance. Late payments may also attract a 15 per cent yearly interest cost.
Digital Rupee Trials
The RBI initiated central bank digital currency (CBDC) trials in late 2022. The RBI's move shows the Indian government's growing interest in the potential of crypto.
The pilot for the CBDC is being conducted in both the wholesale and retail segments. The Digital Rupee-wholesale (e-₹W) trial started on November 1 last year to settle transactions in government securities on the secondary market.
The Digital Rupee-retail (e-₹R) trial allows consumers to use digital currency for daily transactions. If the RBI's pilots work well, it could be a big step toward more people using CBDCs in India and around the world.
In early March 2023, the Indian government decided to subject crypto to the Prevention of Money Laundering Act (PMLA). The rules require businesses that deal with cryptocurrencies to register with the government and comply with anti-money laundering and counter-terrorism financing requirements.
These businesses will also be required to maintain records of all transactions and report suspicious activity to the government. Failure to comply with these regulations could result in penalties or even criminal charges. With the decision to impose taxes and place crypto companies under the purview of the PMLA, the government signalled that it is slowly but surely taking baby steps towards crypto regulation.
Call For Global Coordination
Meanwhile, Prime Minister Narendra Modi and Sitharaman have called for a coordinated approach to cryptocurrencies around the world.
To that end, India announced in February 2023 that it is collaborating with the International Monetary Fund (IMF) and the Group of Twenty (G20) nations to create a regulatory framework for cryptocurrencies. This move is expected to guide policymakers in India and around the world as they consider how best to regulate this rapidly evolving asset class.
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India's step-by-step approach to regulating cryptocurrencies has been the subject of debate, with some criticising the government for being too cautious while others argue that the current approach strikes the right balance between innovation and consumer protection.
Overall, India's regulatory framework for cryptocurrencies is continuing to evolve, and its impact on the global cryptocurrency market remains to be seen.
(The author is the Vice President of crypto investment platform WazirX)
Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.
FAQs
The Indian government maintains a cautious stance on cryptocurrency despite Bitcoin's surging value. At the India Today Conclave held recently, Union Finance Minister Nirmala Sitharaman highlighted the dangers associated with unregulated crypto.
How does India regulate cryptocurrency? ›
Is Cryptocurrency In India Legal or Not? Cryptocurrencies as a payment medium in India are not regulated by any central authority. There are no rules and regulations or any guidelines laid down for settling disputes while dealing with cryptocurrency.
Why is cryptocurrency banned in India? ›
Cryptocurrency exchanges like Binance, Kraken, Kucoin and others were banned in India by the FIU. The Director FIU IND wrote to the Secretary of Meity to block these exchanges as they were illegally operating without following the provisions of the PML Act in India.
What is the history of cryptocurrency in India? ›
Cryptocurrency emerged in India for the first time around 2009 in the form of Bitcoin. It was in the year 2010 that the first commercial transaction occurred followed by the first Cryptocurrency exchange in the year 2013. It has made everyone's eyes turn in India over the past few years.
How does cryptocurrency affect Indian society? ›
Promoting the culture of digital extortion: India became victim to ransomware attacks like Wannacry and the ransom was collected in crypto. India is one of the biggest potential victims of cyber scams. Greater divide in society: India has one of the highest digital inequalities.
Is crypto supported in India? ›
First off, owning and trading Bitcoin (and other cryptocurrencies) is legal in India. The Reserve Bank of India (RBI) classifies cryptocurrencies as "virtual digital assets" (VDAs). This indicates recognition for tax purposes, but they are not considered legal tender.
Is there a crypto ban in India? ›
India has taken a tough stance against cryptocurrencies since 2018, when the central bank prohibited lenders and other financial intermediaries from dealing with crypto users or exchanges though the move was later struck down by the Supreme Court.
Which crypto exchanges are banned in India? ›
The websites of some top global cryptocurrency exchanges like Binance, Kucoin, OKX, among others, were blocked in India on January 12. This comes after the government sent show-cause notices to these crypto exchanges for not complying with the country's money laundering laws.
What is the future of cryptocurrency in India? ›
The future of cryptocurrency in India is heavily influenced by government regulations and the stance of regulatory bodies like the Reserve Bank of India. The government has introduced measures such as a 30% tax on crypto asset profits and the potential introduction of a digital rupee .
What will happen if crypto is banned in India? ›
This means that you will not be able to convert your local currency into buying any kind of cryptocurrency. This also means that you will not be able to liquidate your HODLed cryptos and get them encashed. This means, your HODLed cryptocurrency will be on *HODL* for some time more until the ban is uplifted.
Cryptocurrency is a safe investment or not? Like any other investment, cryptocurrency is not a risk-free investment. The market risks, cybersecurity risks and regulatory risks, as cryptocurrency is not issued or regulated by any central government authority in India.
Is Coinbase banned in India? ›
In Short. Coinbase launched in the country in April last year with an option to let users buy crypto via UPI. Days after the launch, the company was forced to shut down the UPI payment option due to the government's interference. Now, Coinbase is discontinuing services in India.
When did cryptocurrency banned in India? ›
In 2013, the Reserve Bank of India (RBI) issued a warning to individuals or businesses dealing with virtual currencies, and in 2017, it prohibited banks and other regulated institutions from providing services to cryptocurrency traders, effectively banning the purchase or sale of cryptocurrencies by Indian residents.
Who became rich from cryptocurrency in India? ›
Jaynti Kanani - Co-founder of Polygon
From a factory worker's son to co-founding Polygon, Jaynti Kanani's remarkable journey in the crypto space has earned him the status of one of India's first crypto billionaires, showcasing his entrepreneurial prowess and determination.
Which crypto currency was created in India? ›
The Digital Rupee (e₹) or eINR or E-Rupee is a tokenised digital version of the Indian Rupee, issued by the Reserve Bank of India (RBI) as a central bank digital currency (CBDC). The Digital Rupee was proposed in January 2017 and launched on 1 December 2022.
Which crypto exchange is legal in India? ›
In conclusion, the best crypto exchanges in India include Mudrex, CoinDCX, CoinSwitch, WazirX, ZebPay, and BitBNS based on several factors like ease of use, security, fees, coin availability, and more.
Why was Binance banned in India? ›
In January, Binance was among nine offshore cryptocurrency platforms that were banned from operating in India through web addresses and mobile applications. The action was in response to the platforms' failure to comply with FIU and PMLA guidelines.
How is 30% tax on cryptocurrency in India? ›
30% tax on Crypto in India income for FY 2022-23: 30% of ₹1 lakh = ₹30,000 (plus surcharge and cess). Selling: A 30% tax is payable on selling any crypto asset with a profit margin. Selling: A 30% crypto tax is levied when trading crypto. Exchanging: A similar 30% tax is also applied on such occasions.
Is Coinbase legal in India? ›
Coinbase restricts people from certain countries, including India, from using its wallet service due to regulatory and compliance reasons. Coinbase is a U.S.-based company, and as such, it is subject to U.S. laws and regulations, including sanctions programs.
