Bitcoin, Cryptocurrencies and Blockchain

Crypto FAQs answered — about crypto regulations, trading, taxes and CBDC in India

Hello friends

Again we will discuss about the regulations expected in the coming crypto bill of india which is already being discussed in the parliament. 

Lot of questions are there in the minds of the public. I have tried to prepare a list of FAQs for the coming regulations. 

Let’s discuss these FAQs one by one.

1.   Is Crypto activity banned in India totally ?

First understand that there is nothing in the law as on date which bans crypto activity in India. This FUD around us is there because in 2018, RBI issued one official directive to all banks and financial institutions telling them not to entertain transactions with crypto exchanges. And due to this banks and fin. Institutions stopped entertaining crypto exchanges’ transactions which in turn made difficult for exchanges to accept deposit from public. Indirectly that was undeclared ban kind of thing. But in 2020, Supreme court turned down the RBI circular and it started again the crypto transactions by the exchanges. But still banks tried to create hurdles for exchanges and public.

2.   Is crypto trading legal in India?

It’s very important to understand the Law which specifically speaks about the things either ‘legal’ or ‘illegal’.  According to the Law prevailing in the country, our courts / judges are in a position to define about anything which is legal or illegal. But in case of crypto, it is a new product / animal / thing in the market which has not been defined in the Law either legal or illegal. That’s why experts keep cryptos under the grey area where crypto is being termed as neither legal nor illegal. Even RBI never said it is illegal but RBI has concerns about it. Govt. is working on a bill to set regulations which will define how the crypto exchanges will work, how the incomes generated from crypto transactions will be taxed under income tax and how GST will be levied etc... 

3.   Is crypto mining legal in India?

Printing a currency note is illegal, because only the govt. of the country is powered to do it. Crypto is not the legal tender, so there is no problem in mining the cryptos, though it is unregulated at the moment. Like in China, there are no regulations but govt. there has banned the public from mining the cryptos and made it illegal. 

4.   Is Bitcoin legal in India?

Normally we ask the question if cryptocurrency is legal in India. But this is also very common to ask if Bitcoin is legal tender in India, the answer to this is no, which means you can not use Bitcoin to buy things in place of Indian rupees. The govt. does not recognise the asset as legal tender, and the same position prevails in most countries around the world. In the questions asked in parliament, it was asked if Bitcoin is going to be the legal tendet, and the FM replied “No, sir”, that there is no proposal for recognising Bitcoin as legal tender. 

5.   Do I have to pay income taxes on crypto in India?

It is clear that income earned from cryptos is taxable under income tax. But important is to decide under which head it should be taxed. Income in the hands of crypto exchanges should be reported under the head of ‘income from business or profession’ as experts say, further crypto income in the hands of individuals can be taxed under ‘capital gains or losses’ , income of crypto traders also can be taxed as business income.

After the regulations, proper heads also will be clarified.        

6.   Is blockchain technology legal in India?

Blockchain technology is very much legal as other technologies are in India, like AI (Artificial intelligence), IOTs (Internet of Things), ML (Machine Learning). Some State govts. In India already have started using blockchain technologies like Andhra govt. is using it for managing land records, Maharashtra for maintaining records of covid vaccine, Tamil govt. for voting. Lot of banks have come together to form groups to use blockchain in trade finance at domestic level, RBI is planning CBDC at blockchain technology. Recently Central govt, also has released it’s 5 years strategy for blockchain in India.   

7.   is blockchain technology & cryptocurrencies are same or different ?

Cryptocurrencies needs blockchain, but blockchains do not require cryptocurrencies to a certain extent. If it is public blockchain, then it needs cryptocurrency to power the blockchain.  Records of cryptocurrencies are maintained on the blockchains.

Blockchains are the underlying technologies for the cryptocurrencies.

8.   If govt. bans on cryptocurrency, does it hamper blockchain technology in India?

Here let me describe such a ban on cryptocurrencies as ban on – centralized or decentralized cryptos. In India crypto exchanges are centralized exchanges for which govt. is coming with regulations and the plan is to appoint SEBI as regulator for the same. It means cryptos will be allowed to trade at centralized crypto exchanges.

But, govt. is considering to ban cryptocurrencies in private wallets which means decentralized wallets / exchanges will not be allowed to do business in India. Technically speaking about decentralized cryptos or wallets or exchanges can not be banned anywhere in the world but the govt. will restrict or make illegal for the residents / citizens of the country to keep / store / trade cryptos at such decentralized platforms. Doing this ban means it will hemper the growth of blockchain eco system in the country. But it is expected that the govt. may provide some exceptional window for this by allowing it for developer community or non-individuals involved in the development or R& D or experiments of blockchain technology. For instance, if someone is building on the Ethereum blockchain, their transactions would be validated using Ether and on the Cardano blockchain, it would be the ADA token.

9.   Is India working on its own CBDC?

As mentioned before, the RBI is working on a CBDC that will be based on a private blockchain platform or permissioned blockchain. Control of CBDC will be in the hands of central agency i.e. RBI. In the parliament, FM also has announced that govt. is coming with regulations to pave the way for development of framework for launching CBDC by RBI.