“Discover the current legal status of cryptocurrencies in India with our informative blog. Gain a clear understanding of the regulations, recent developments, and the impact on the crypto landscape.”
Is Cryptocurrency legal?
India has no special legislation to regulate virtual currencies and cryptocurrency. They have a 30% tax on cryptocurrencies or virtual assets and a 1% TDS deduction when buying or selling them. With the launch of the digital rupee, we are moving towards the virtual revolution. However, the legal status of cryptocurrency differs from country to country.
Difference between digital currency and cryptocurrency
Digital currency is often confused with cryptocurrency. A digital currency has features similar to actual money. For instance, the digital rupee or dollar is a digital currency, meaning real currency is available digitally. We can use digital currency for all kinds of monetary transactions.
Cryptocurrencies do not have legal tender status. This means crypto cannot be used to purchase and sell goods and services. Cryptocurrency is an investment similar to gold or any other bond. Simply put, Cryptocurrency is not money.
Legal Status of Cryptocurrency in India
The Indian government has repeatedly gone back and forth on legalizing cryptocurrency. However, some actions taken by the authorities indicate the intent to provide and recognize the cryptocurrency’s legal status slowly. Cryptocurrency has yet to be a regulated payment mode in India. However, the supreme court of India has ordered against the ban on cryptocurrency, stating that an asset class cannot be completely banned.
At Union Budget 2022, our finance minister announced that any gain from virtual digital asset transfer, including NFTs and cryptocurrencies, would be taxed at 30 percent, and 1% would be deducted at the source. However, he stated that taxation on virtual assets does not imply legalizing cryptocurrencies.
While this may be controversial, the government hasn’t recognized the income earned from cryptocurrency as a criminal charge. The Supreme Court also ordered against banning cryptocurrencies, stating that you cannot exclude an asset class. Hence, we can safely assume that the government indirectly agrees that income from cryptocurrency is revenue generated from a lawful source, and there is no ban on it.
Why is Cryptocurrency a problem for the Government?
While cryptocurrencies have many advantages and are gaining popularity, there are a few constraints to legalizing them from the government’s perspective.
- The decentralized nature of cryptocurrency makes it more difficult for the government to trace it. It also means if any user faces an issue with the transactions, there is no authority to go to for a solution.
- Since Cryptocurrency is fairly new, the general population is unaware of its security features, making them more prone to fraud. Hackers are taking full advantage of the unawareness. Hence, gaining knowledge about an asset class is imperative before investing money.
- Crypto prices are highly volatile, with huge jumps and drops. It is not best suited for people who invest heavily following the trend. Also, the highly volatile nature of cryptocurrency affects the economic structure, which the financial authorities have to look into.
The U.S. President’s Impact
In March 2022, the U.S. President, Joe Biden, signed an EO (Executive Order) acknowledging the existence of cryptocurrency. It marked a significant moment in the history of cryptocurrencies. This step was considered a drive to take Bitcoin, Ethereum, and other crypto coins closer to becoming a legitimate financial option.
Mr. Biden’s order directed the U.S. treasury department and Federal Reserve to explore the impact of cryptocurrency on national security and financial stability. The finance industry has widely accepted and anticipated Mr. Biden’s executive order as a positive move toward the future.
Although cryptocurrency is considered a volatile form of money, it reached its all-time high in 2021, partially due to wider acceptance by more companies in payment. A few athletes and politicians are now receiving salaries in crypto. Wall Street has created ETFs (Exchanged-traded funds) around crypto futures.
After the price of Bitcoin, Ethereum, and many more skyrocketed, crypto tokens made splashy moves. Despite the risky wild price swings, nearly 40 million people in the U.S. have invested in cryptocurrencies. Coinbase got listed on NASDAQ in 2021, and crypto.com aired with massive web traffic.
Launch of the Digital Rupee (CBDC)
The Reserve Bank of India launched the pilot of its digital currency, CBDC, on December 1, 2022. CBDC is categorized as legal tender in a digital format. It is commonly known as the digital rupee and will be exchangeable at par with existing currencies. Digital Rupee is also acceptable for payments and a safe store of value.
Digital Rupee is similar to the currently issued banknotes. Still, it aims at creating an additional option to use money. It is expected to facilitate easy digital transactions. The RBI also views CBDC as a way to stabilize the financial system of our economy.
“Digital Rupee is fiat currency in a different avatar.” CBDC is the digital twin of regular paper currency and is exchangeable with cash. However, it is not a decentralized asset like cryptocurrency, as the central bank of India regulates it. Unlike cryptocurrency, Digital Rupee can be used as legal tender to buy anything.
Need for Digital Rupee
The RBI aims to push India ahead in the virtual currency race by launching the Digital Rupee. The growing importance and worldwide acceptance of cryptocurrency increased the need to launch our digital presence. Here is why it was the need of the hour.
- Blockchain technology will allow easy ledger maintenance and real-time tracking.
- The digital rupee will increase the transparency and efficiency of money.
- Payment without intermediaries.
- Reduce demand for cash and strengthen the government’s vision towards a cashless economy.
- The payment system will be available to customers 24/7.
- Convenient cross-border transfers, making them less challenging and inexpensive.
- Lower transaction costs.
- More mobile than currency notes will save printing, distributing, and storing costs.
- Keeping up with the times of cashless-digital financial framework and making operations seamless.
- Safer because it is centralized and backed by the RBI.
Bottom Line
Crypto trading platforms like LotusX are witnessing a giant volume leap of investors. We all know an unregulated market is highly volatile and risky for investors. However, introducing the Crypto Bill, the Digital Rupee, and the taxation of gains from the transfer of digital assets are all reasonable steps toward regulating cryptocurrency. The launch of Digital currency will strengthen the underlying technology of cryptocurrency.
