Author: Krishika Yadav , Avantika University Ujjain (M.P)
To the Point
Cryptocurrency in India has evolved from a fringe fascination to a mainstream financial conversation. While millions of Indians are investing in digital assets like Bitcoin and Ethereum, the legal and regulatory framework remains uncertain. This article explores the rise of crypto in India, the legal grey zones it occupies, and the reforms needed to balance innovation with investor protection.
ABSTRACT
Cryptocurrency in India sits at a legal crossroads. While millions invest in digital assets, the absence of a comprehensive regulatory framework creates uncertainty. This article examines the legal status of crypto, the government’s evolving stance, and the need for a balanced approach that encourages innovation while safeguarding users.
Use of Legal Jargon
- Virtual Digital Asset (VDA): As defined under the Income Tax Act (post-2022 amendment), includes cryptocurrencies and NFTs.
- Regulatory Arbitrage: The practice of exploiting gaps between jurisdictions to avoid compliance common in crypto exchanges operating across borders.
- Fiat Currency: Government-issued currency not backed by a physical commodity, unlike decentralized cryptocurrencies.
- Know Your Customer (KYC): A legal requirement for exchanges to verify user identity, crucial for anti-money laundering compliance.
- Central Bank Digital Currency (CBDC): A digital form of sovereign currency issued by the Reserve Bank of India (RBI), distinct from decentralized crypto.
The Proof
- India ranks among the top five countries in crypto adoption, with over 115 million users as of 2024.
- The Union Budget 2022 introduced a 30% tax on income from VDAs and a 1% TDS on transactions, signaling partial recognition but not legalization.
- The RBI remains cautious, warning that private cryptocurrencies pose risks to financial stability and consumer protection.
- Despite regulatory ambiguity, Indian startups like CoinDCX and WazirX have attracted global investment, reflecting strong market potential.
Case Laws
- Internet and Mobile Association of India v. Reserve Bank of India (2020)
In 2018, the Reserve Bank of India (RBI) issued a circular that told all banks to stop offering services to anyone dealing with cryptocurrencies. This move hit crypto exchanges hard—they couldn’t open bank accounts or process payments, which made it nearly impossible to operate.
The Internet and Mobile Association of India (IAMAI) stepped in and challenged the RBI’s decision in the Supreme Court, arguing that it violated the right to trade and profession under Article 19(1)(g) of the Constitution. They said crypto wasn’t illegal, just unregulated, and the RBI had no law backing its ban.
The RBI defended its action, saying it was trying to protect the financial system from risks like fraud, money laundering, and terrorism financing.
In March 2020, the Supreme Court ruled in favor of IAMAI. It said the RBI’s ban was disproportionate, lacked solid evidence, and unfairly restricted a lawful business. The Court struck down the circular, restoring banking access to crypto exchanges and giving the Indian crypto industry a major win.
- Kali Digital Ecosystems v. Union of India (2018):
Kali Digital, an Ahmedabad-based startup, planned to launch a crypto exchange called CoinRecoil. But just before their launch, the RBI issued a circular in April 2018 banning banks from dealing with crypto businesses. This made their platform non-functional.
Kali Digital challenged the RBI’s move in the Delhi High Court, arguing it violated their right to do business under Article 19(1)(g) of the Constitution. The case was later merged with other petitions and moved to the Supreme Court.
Eventually, in 2020, the Supreme Court struck down the RBI’s ban in the IAMAI v. RBI case—giving crypto startups like CoinRecoil a second chance.
Conclusion
India’s crypto journey is a story of cautious optimism. While the government has taken steps to regulate the sector through taxation and pilot programs, the lack of a clear legal framework continues to create confusion. What’s needed now is a forward-looking regulatory regime—one that distinguishes between speculative abuse and genuine innovation, and ensures that India doesn’t miss the blockchain revolution.
FAQS
Q1: Is cryptocurrency legal in India?
Cryptocurrency is not illegal, but it is also not recognized as legal tender. It is taxed and regulated under specific provisions, but lacks a dedicated law.
Q2: What is the government’s stance on crypto?
The government has adopted a cautious approach—taxing crypto income while warning against its risks. A comprehensive bill is still awaited.
Q3: What is the difference between crypto and CBDC?
Cryptocurrencies are decentralized and privately issued, while CBDC is a digital version of the Indian rupee issued by the RBI.
Q4: Can crypto be banned in India?
A complete ban is unlikely due to the global nature of crypto and its widespread adoption. However, tighter regulations and restrictions are possible.
