Digital currency Bitcoin made its debut in 2009 and ushered in a new era of cryptocurrency. There are more than 500 cryptocurrencies to choose from, but Bitcoin remains the favourite. Regulators, tax authorities, and enforcement agencies are exploring the phenomenon. But the one question that pops up every time and everywhere is – ‘Is Bitcoin legal or illegal?’ Well, the answer depends on which part of the world you are in.
Uncertainty occupies a lot of space in India’s cryptocurrency system. The first question that arises is the status –neither legal nor illegal – it holds in India. To add to the confusion are the government and Central Bank’s take on it, expressing their discomfort with virtual currencies. Finance Minister Arun Jaitley has on multiple occasions stated that India doesn’t recognize cryptocurrencies as legal tender and has cautioned citizens against investing in them. However, this stand of the government doesn’t immediately term cryptocurrencies as illegal. As of now, Bitcoin is neither legal nor illegal, and the issue is pending in the apex court.
Even the RBI has not stated Bitcoin transactions as illegal, and for the time being, the decision is being kept on hold. The Reserve Bank of India (RBI) has concerns over the introduction of a parallel currency to the Indian rupee. Bitcoins are neither ‘commodities derivative’ nor ‘securities’ under the Securities Contracts (Regulation) Act, 1956, and just amending the definition of ‘securities’ may not resolve the issue of Bitcoin regulation.
Currently, in India, there are no rules and regulations on Bitcoin by the Government of India. It seems that the government and the Reserve Bank of India (RBI) has put the issue in a grey zone by not emphasizing it as legal or announcing it as illegal. The Bombay Stock Exchange (BSE) was established in 1875, and trading is happening since then. The share market regulator – the Securities and Exchange Board of India (SEBI) – was established in 1992. So does that mean the share market was illegal before 1992? The answer is ‘no’. Awareness regarding the share market came only after Harshad Mehta’s scam in 1992.
The Government of India learned a lesson from the scam and then regularized the share market under the Security Annexure Board of India, 1992. So are we waiting for another scam related to cryptocurrency to make it legal? Today cryptocurrency has become a global product. It is neither a currency nor a derivative. I personally feel it should be included in the securities contract law as a security and should be treated as equity with KYC and other formalities.
To avoid uncertainty among the common man, the government should introduce taxation norms or laws to regulate the space. The delay will only add to the confusion and discourage people from investing in virtual currencies. There are certain chief areas of concern for Indian regulators:
The Government of India can create a certain bracket by limiting the transactions to a certain amount. If any person does any heavy transaction, the KYC will help the bank notify it. If the transactions are government-recognized, then it helps avoid cross-border transactions.
In the case of heavy transactions, banks are always notified. Similarly, in cryptocurrency, there are digital wallets that keep a track of every minute transaction. For instance, if any funds are transferred through cryptocurrency from any foreign countries in our country, then it can be notified with the help of KYC. The government should create a bracket mentioning a specific number of Bitcoins that can be credited to an account. If the user exhausts the limit, then it can be easily brought to notice.
There are several reports of cyber criminals hacking virtual currencies around the world. There are many fake virtual currencies that pop up every day, exposing users to risk over their money. These currencies do not have any value or digital wallet.
Crypto usage in India is quite small as compared to the rest of the world. Amidst regulatory uncertainty about cryptocurrency, there is a high demand in the sector, especially in the metro cities. The virtual currency-related jobs have caught the fancy of many Indians, and in the last few months, our country has witnessed a significant growth in the employers as well as employees in the crypto sector. The introduction of cryptocurrency by the government will have a positive impact on the employment sector. For instance, two decades ago, the sharemarket was seen as gambling, but with time, people have started recognizing it.
Today there are several channels that run 24x7 providing information only on equity and share markets, creating many employment opportunities. If Bitcoin is recognized, then a different vertical on employment will be generated.
If reports are to be believed, Laxmicoin – promoted as an Indian version of Bitcoin – has sought clarifications from regulatory authorities. The name ‘Laxmicoin’ is derived from the Hindu goddess of wealth Lakshmi. It seems that the RBI’s warning against the use of virtual currencies is proving a hurdle for the launch of Laxmicoin.
It is still unofficial and has not yet been confirmed by the Government of India. In case, if the government has any plans to introduce it, I feel we all should wholeheartedly welcome it. India has no virtual currency yet, while Bitcoin has been introduced to Japan and is legal tender there. The government should understand the current structure and legal implications and suggest a framework for regulation of such virtual currencies. Also, new products like patents, copyrights, and trademark will be introduced, and proper guidelines for its smooth functioning should be made.
Meanwhile, there have been reports that the Income Tax department has carried out surveys and sent legal notices to over 5,00,000 investors who have earned profit from Bitcoin.
Pankaj Sinha is an Advocate and the Founder of Right Direction.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)