Author: Geeta Ashokrao Shinde
Manikchand Pahade law College ,
Ch.Sambhajinagar
Abstract
Cryptocurrency represents a significant transformation in the global financial and legal architecture. This article gives information of legal foundations, regulatory ambiguities, technological underpinnings, and judicial interpretations surrounding cryptocurrencies. It analyzes their nature as assets or currencies , regulatory treatment by governments, and significant precedents from Indian and international courts.
The aim is to demystify crypto’s legal status while offering a balanced perspective on its risks, opportunities, and future trajectory.
To the Point
Cryptocurrencies—decentralized digital assets that utilize blockchain technology—have disrupted traditional financial systems. Their growing use in transactions, investments, and contracts necessitates a deep legal understanding. The legal system is now grappling with categorizing, regulating, and taxing these assets, and jurisdictions globally vary in their approaches from complete bans to regulatory frameworks.
Use of Legal Jargon
Fiat Currency: Government-issued legal tender not backed by a physical commodity.
Asset Class: A group of financial instruments with similar characteristics and behavior in markets.
Securities Law: A body of law regulating financial instruments like stocks and bonds.
Know Your Customer (KYC): Legal process to verify the identity of clients.
Regulatory Sandbox: A framework allowing startups to test innovations under regulator supervision.
The Proof
Nature and Classification The classification of cryptocurrency remains jurisdiction-specific:
In the United States, the SEC treats some cryptocurrencies as securities, especially through the Howey Test which checks if a transaction involves an investment contract. In India, cryptocurrencies are not recognized as legal tender under the Coinage Act, 2011, but are permitted to be traded as assets. The RBI has clarified (post-2020) that there is no blanket ban.
Taxation of Crypto
In India, the Finance Act, 2022, introduced Section 115BBH, imposing a 30% flat tax on gains from Virtual Digital Assets (VDAs), without allowing set-offs or deductions. Additionally, Section 194S mandates a 1% TDS on crypto transfers exceeding ₹10,000 annually.
Regulatory Milestones in India
RBI Circular (2018): Prohibited banks from dealing in cryptocurrencies. Supreme Court Verdict (2020): Quashed the RBI ban (refer to case laws below).
Crypto Bill (Drafted but not introduced): Proposes the ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’. Digital Rupee Launch (2022-23): CBDC pilot project under RBI.
Case Laws
1. Internet and Mobile Association of India v. Reserve Bank of India (2020) 10 SCC 274
Facts: RBI’s 2018 circular directed towards banks to stop dealing in crypto-related businesses. The petitioner says that this was arbitrary and violated Article 19(1)(g) of the Constitution (Right to trade and business).
Judgment: The Supreme Court held that RBI’s ban was disproportionate and unconstitutional, as it lacked empirical evidence of harm and violated fundamental rights.
Significance: This landmark case reopened banking channels for crypto exchanges in India and underscored judicial scrutiny over regulatory overreach.
2. SEC v. Ripple Labs, Inc. (USA, 2020 – ongoing)
Facts: The SEC alleged that Ripple’s sale of XRP constituted an unregistered securities offering.
Development: A 2023 judgment held that XRP sold on exchanges was not a security, but institutional sales were treated as such. This Set a major precedent on the classification of crypto tokens under securities law.
3. Craig Wright v. Kleiman (Florida, 2021)
Facts: Dispute over ownership of 1.1 million Bitcoins mined during early Bitcoin development.
Judgment: Jury found Wright liable for conversion but did not conclusively confirm his claim of being Satoshi Nakamoto.
Significance: Reinforced the legal complexities surrounding identity and ownership in blockchain environments.
Conclusion
Cryptocurrency sits at the intersection of finance, law, and technology. While its disruptive potential is immense, lack of global regulatory consensus creates both risk and uncertainty. In India, the judiciary has shown a progressive stance by upholding crypto rights under Article 19, but legislative and executive clarity remains pending. Taxation policies indicate de facto recognition, though the absence of a comprehensive regulatory framework leaves gaps.
Way Forward:
Introduce a dedicated Cryptocurrency Regulation Act defining digital assets, regulating exchanges, and consumer protection. It gives courage to innovation through regulatory sandboxes with SEBI and RBI collaboration.Increase international cooperation through forums like the G20 Financial Stability Board (FSB). Public education and investor awareness programs to prevent scams and misinformation.
FAQs
Q1. Is cryptocurrency legal in India?
Yes, no legal tender, cryptocurrency is not banned in India. Trading is permitted and taxed under specific provisions.
Q2 . Can I buy goods and services using Bitcoin in India?
There is no law prohibiting such transactions, but since Bitcoin is not legal tender, sellers are not legally obligated to accept it.
Q3 . Is income from cryptocurrency taxable?
Yes. Gains from crypto are taxed at 30% flat under Section 115BBH of the Income Tax Act, and 1% TDS is aplicable on transfers above ₹10,000.
Q4: Are cryptocurrencies regulated by SEBI or RBI?
Both are involved. RBI regulates banking access, while SEBI may regulate tokens considered securities.However, no formal regulatory framework exists yet.
Q5: What is the status of the Crypto Bill in India?
The ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ was drafted but not introduced in Parliament. The government is awaiting global consensus.
Q6: What is CBDC or the Digital Rupee?
CBDC is a central bank-issued digital currency. India launched pilot projects in 2022 for both retail and wholesale segments under the RBI.
Q7: Are crypto exchanges legal?
Yes, exchanges like CoinDCX, WazirX, and CoinSwitch operate legally in India, complying with KYC and AML norms.
Q8: Can cryptocurrency be used for money laundering?
Like any financial tool, crypto can be misused. That’s why AML laws and KYC norms are essential in crypto
exchange operation.
