In India’s conventional and unofficial economies, a small but expanding group of enterprises are increasingly using crypto currency as a payment option. The potential for cryptocurrencies to truly globalize the financial system is enormous. The enormous populace that the banking system fails to adequately service is helped by the speed and ease of paperless crypto-transactions, which are uncontrolled by any financial system.

The potential use of cryptocurrencies in India would be influenced by a variety of factors, including security issues and gaining consumer and commercial acceptance. While there are many immediate problems associated with cryptocurrencies, adequate legislation is required to address them in order to eliminate any risks associated with their use. Some Indian cryptocurrency exchanges, like BuyUCoin, have proposed taxing cryptocurrency gains in order to make them subject to investigation by law enforcement and boost user engagement.

Lack of regulatory protection for investors

Governments all over the globe are still attempting to understand the ramifications of virtual currencies and determine the global laws governing them. While some nations have outright forbidden or restricted the use of Bitcoin and other comparable cryptocurrencies, others have made it explicitly legal to use and trade them. The majority are having trouble with investor protection regulations for cryptocurrencies.. 

Many Indian investors have become attracted to digital assets because of the severe economic slowdown and the promises of large profits. Without clear legislation governing cryptocurrencies, scammers are more likely to steal investors’ cash amid employment losses brought on by the coronavirus outbreak. A major worry for the global counter-terrorism community is undoubtedly how to adequately address the threat posed by bitcoins.

The Reserve Bank of India (RBI), however, has been outspoken about its worries about cryptocurrencies and is eager to forbid the usage of private crypto. On the other side, the government has stated that it would prefer to designate cryptocurrency as an asset class, much like gold.

Legal experts said that a lack of relevant statutes makes such transactions akin to barter deals where the acceptance is purely at the discretion of the recipients.

Whether crypto is legal or legitimate in India has come up repeatedly. Neither the government nor the central bank, the Reserve Bank of India (RBI), has recognized cryptocurrencies. The Reserve Bank of India (RBI) issued a circular dated 6th April 2018 (1), notifying that citizens will not be allowed to deal in cryptocurrencies as they pose several serious concerns regarding consumer protection, money laundering, market integrity, and many others. But in 2020, in the case of Internet and Mobile Association of India v. Reserve Bank of India (2), Supreme Court struck down the aforementioned circular. The Supreme Court seemed to have favoured virtual currencies by allowing its dealings.

The supreme court observed that cryptocurrency should be regulated by the RBI. The Supreme Court held that since RBI is a financial institution whose aim is to protect public money, it was within RBI’s right to ban cryptocurrency. But at the same time SC also said that in place of banning these virtual currencies altogether, the RBI could have looked for alternatives that may have been advantageous to the virtual currency users by implementing apposite rules.

After the Internet and Mobile Association of India Judgment (Supra), the government was planning to introduce “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” (the “Bill”) to the Lok Sabha. According to the Lok Sabha bulletin dated November 23, 2021 (3), the Bill seeks ‘to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India.

The Bill also seeks to prohibit all private cryptocurrencies in India; however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.’ But owing to several complexities, the bill has not been introduced in any house of Parliament.

Companies Act Provision

But India is trying to regulate the cryptocurrency market to make it less volatile and risky for the citizens. MCA amended Schedule III of the Companies Act 2013 which states that from Financial Year 2021-22 all the companies will be required to disclose their investments in cryptocurrencies, and also state any profit or loss involved in the transaction. The holder of virtual currencies will also be required to state the number of holdings, details of deposits, and advances from any person for trading.

In April 2018, the Reserve Bank of India (RBI) issued a circular prohibiting banks and other financial institutions from providing services to individuals and businesses dealing in cryptocurrencies. The circular stated that the RBI was concerned about the potential risks of cryptocurrencies, such as money laundering and terrorism financing. This effectively banned the use of cryptocurrencies for payment in India, as individuals and businesses could not convert their cryptocurrencies into fiat currency through banks.

However, in March 2020, the Supreme Court of India overturned the RBI’s circular, stating that it was unconstitutional. This ruling was seen as a victory for the cryptocurrency industry in India and opened up opportunities for individuals and businesses to once again invest in and trade cryptocurrencies. Since the Supreme Court ruling, there has been some progress towards creating a regulatory framework for cryptocurrencies in India. In January 2021, the Indian government introduced the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. The bill proposes to ban all private cryptocurrencies in India, but allows for the creation of a central bank digital currency (CBDC) issued by the RBI. The bill has not yet been passed into law, and it is unclear how it will be enforced if it is passed.

Despite the regulatory uncertainty, some businesses in India have started accepting cryptocurrencies as payment. For example, in March 2021, Tata Motors announced that it would start accepting payments in cryptocurrencies for its EV (electric vehicle) charging services. However, it is worth noting that such acceptance is not widespread, and there is no legal framework governing these transactions.

Taxation Policy on Cryptocurrency in India

Through the Finance Bill, 2022, Union Finance Minister Nirmala Sitharaman has proposed to impose a flat tax of 30% on the transfer of virtual assets, including NFTs and cryptocurrencies. A new Section 115BBH will be added to the Income-tax Act of 1961 for this purpose.

Furthermore, there is no provision for any deduction in regard to expenditures other than the cost of purchase when determining the revenue from the transfer of virtual assets. Additionally, in accordance with the proposed rules of Section 115BBH, the income from the transfer of one virtual asset cannot be offset by the loss incurred from the transfer of another virtual asset. This newly proposed virtual asset tax will be applicable from the Assessment Year 2023-24. That means all the income arising from crypto or NFT transactions in Financial Year 2022-23 will be taxed at the rate of 30 percent.

In conclusion, while cryptocurrencies are not widely accepted as legal payment in India at present, there have been some developments towards creating a regulatory framework for cryptocurrencies. The future of cryptocurrency regulations in India