There’s no doubt that in recent years, cryptocurrency has gained popularity. The whole world is investing and transacting in cryptocurrency, whereas, on the other side, the position of cryptocurrency in India is running with some strict restrictions. After the announcement by the Finance Minister, everyone has a lot of doubts.
So here in this blog, we will try to clear every single doubt about the position of cryptocurrency in India, its regulation, problems, and taxation policy in India.
Cryptocurrency is a digital or virtual form of currency that uses cryptography for security. It operates independently of government control and is decentralized, meaning it is not controlled by a central authority or financial institution. It typically uses blockchain technology to provide transparency and authenticity. This technology assures that cryptocurrency transactions are secure, traceable, and tamper-proof.
One of the primary benefits of cryptocurrencies is that they enable quick and low-cost international transactions. They also provide more anonymity than traditional modes of payment. Furthermore, because cryptocurrencies eliminate the need for intermediaries and speed procedures, they have the potential to transform industries such as finance, supply chain management, and even voting systems.
How could it be a problem if it sounds secure? It is often said that where there are pros, there are also cons. This age-old saying holds some truth. In many situations, when we evaluate the positive aspects of something, we must also consider the negative aspects. Right now, the same thing is happening in the Indian crypto market.
The government of India may view cryptocurrency's position in India as undesirable for various reasons:
1. Lack of control: Governments control their national currencies, allowing them to influence monetary policy and manage economic stability. The rise of cryptocurrencies may weaken the government's ability to manage the flow of money and enact monetary policies, thereby hurting the country's economy.
2. Decentralized Nature: Decentralized governance in India confronts several problems that impede its successful implementation and effectiveness. One significant issue is a lack of ability and resources at the local level, which frequently leads to inadequate decision-making and execution. Many local governments lack the required knowledge and financial resources to carry out their tasks and handle local challenges.
3. Volatility and Risks: Cryptocurrencies in India are digital assets with varying values. Cryptocurrency prices in India are very volatile and can change dramatically in a short period of time. If individuals opt to invest in cryptocurrencies and the values vary significantly, the economy of the country may suffer, and the country's financial authorities must investigate. This resulted in a decline in cryptocurrency trading within the country.
4. Non-traceable: The transmission of cryptocurrency does not necessitate the use of an intermediary, third party, or authority. The transaction is simple, but once completed, it cannot be reversed or tracked. In this way, cryptocurrency can be utilized to undertake unlawful transactions such as tax evasion and asset concealment. As a result, it is difficult for the authorities to ensure that cryptocurrency is not utilized for unlawful purposes in the country.
5. Scams: Cryptocurrency has existed for a long time, but it has only recently achieved popularity, which means that many are still unaware of its security mechanisms and features. This provides a chance for hackers and fraudsters. There have been several frauds and scams, and many traders and investors have lost money as a result. These are some of the reasons why the government is still debating the legal status of cryptocurrencies in India and how to regulate their operation.
The Indian government has had a rocky relationship with cryptocurrencies. While cryptocurrencies are not overtly forbidden, the Reserve Bank of India (RBI) issued a circular in April 2018 prohibiting banks from providing services to people or companies dealing with cryptocurrency. However, the Supreme Court of India reversed this directive in March 2020, removing the banking prohibition.
Since then, the government has been looking at effective methods to regulate cryptocurrencies. There have been proposals for enacting separate cryptocurrency legislation to cover consumer protection, money laundering, and illicit activity.
There is currently no comprehensive regulatory framework for cryptocurrencies in India. Crypto investors and companies are working in a volatile environment. The government's cautious stance might be motivated by a desire to find a balance between embracing the potential advantages of cryptocurrency and tackling the accompanying hazards.
The position of cryptocurrency in India is still evolving, and it remains to be seen how it will be regulated in the future. The government has shown mixed views on cryptocurrencies, with some officials expressing concerns about their potential for anonymity and illicit activities.
In February 2023, Finance Minister Nirmala Sitharaman informed Parliament that India was discussing with G-20 member countries the need to adopt a common operating procedure for regulating crypto assets.
She stated that crypto assets, including the latest wave of Web 3.0 crypto coins, are relatively new and emerging industries that would necessitate extensive international coordination for any particular regulation governing these industries to be truly successful.
Because cryptocurrency assets are borderless by definition, international coordination is required to prevent regulatory arbitrage. As a result, any law for regulation or prohibition may only be effective with major international collaboration on assessing risks and advantages, as well as the establishment of a common taxonomy and standards.
India will implement a 30% income tax on cryptocurrency earnings in April 2022. The law requiring 1% tax withholding at source on cryptocurrencies went into effect in July 2022.
The position of cryptocurrency in India remains uncertain due to strict restrictions and a lack of a comprehensive regulatory framework. The government's concerns about lack of control, decentralization issues, volatility, non-traceability, and scams have led to cautious approaches toward cryptocurrency. As India seeks to strike a balance between embracing the potential benefits and addressing the risks, international coordination for effective regulation becomes essential. The implementation of income tax on cryptocurrency earnings further reflects the ongoing evolution of India's approach to this rapidly evolving digital asset class.
Written by- Ritika Jaggarwal