Cryptocurrency is a de-centralised digital currency which works through computer networks, without the need for a government or bank to control it. It uses cryptography for secure transactions and operates through a distributed ledger technology called blockchain technology. Cryptocurrency transactions are verified by a network of nodes and stored in blocks to ensure transparency and security.
Bitcoin was the first cryptocurrency, released as open-source software in the year 2009. There are more than 25,000 types of cryptocurrencies. Over 40 cryptocurrencies have a market capitalisation of more than $1 billion. The global cryptocurrency market cap is approximately $2.4 trillion, with the dominant cryptocurrencies being Bitcoin and Ethereum. Cryptocurrency landscape currently has over 560 million users worldwide.
Current Legal Status in India
Cryptocurrency is not banned in India and there is no indication of an impending ban in the near future. However, cryptocurrencies are not recognised as legal tenders in India and instead classified as Virtual Digital Assets under the Income Tax Act. While cryptocurrency trading is legal in India, there are certain restrictions and unclear regulatory frameworks. The Reserve Bank of India, the Securities Exchange Board of India and the Ministry of Finance are responsible for regulating cryptocurrencies in India.
In the year 2018, the Reserve Bank of India imposed a banking ban on cryptocurrencies. To be specific, the RBI prohibited banks and financial institutions from providing services related to cryptocurrency transactions. However, in the year 2020, the Supreme Court of India struck down RBI’s ban as unconstitutional, thereby restarting cryptocurrency trading in the country.
Regulations in Place
In the 2022 Union Budget, the Government of India introduced taxation measures for cryptocurrency. A flat 30% tax was imposed on profits from crypto trading or investments. In addition, a 1% tax deducted at source or TDS was put on crypto transactions above certain thresholds.
Crypto traders and exchanges are required to comply with KYC and Anti-Money Laundering norms. Exchanges are also required to register with the Financial Intelligence Unit-India. Nine offshore exchanges were banned for non-compliance in late 2024.
Government Position
The Government of India had planned to bring a bill, Cryptocurrency and Regulation of Official Digital Currency Bill, in the year 2021. This bill proposed to ban all private cryptocurrencies while allowing a government-backed digital currency called Central Bank Digital Currency. It also proposed a legal framework for digital assets. However, this bill is yet to be passed by the Parliament.
The Government of India is currently working on making a decision on whether to ban cryptocurrencies outright or establish a regulatory framework. The stance of the government is unclear, at present.
