Bitcoin: Myth or Reality? in present Indian Legal System
Digital currency Bitcoin made its debut in 2009 and ushered in a new era of cryptocurrency. There are more than 500 cryptocurrencies to choose from but Bitcoin remains the favorite. Regulators, tax authorities and enforcement agencies are exploring the phenomenon. But the one question that pops up every time and everywhere is ‘Is Bitcoin legal or illegal?’ Well, the answer depends on which part of the world you are in.
Uncertainty occupies a lot of space in India’s cryptocurrency system. The first question that arises is the status –neither legal nor illegal – it holds in India. To add to the confusion are the government and central bank’s take on it, expressing their discomfort with virtual currencies. Finance Minister Arun Jaitley has on multiple occasions stated that India doesn’t recognize cryptocurrencies as legal tender and has cautioned the citizens against investing in them. However, this stand of government doesn’t immediately term cryptocurrencies as illegal. “As of now Bitcoin is neither legal nor illegal and the issue is pending in the apex court. Even the RBI has not stated Bitcoin transactions as illegal and for the time being, it is being kept on hold. Reserve Bank of India’s (RBI) concerns the introduction of parallel currency to the Indian rupee,” explains Pankaj Sinha, an advocate and founder of Right Directions. Bitcoins are neither ‘commodities derivative’ nor ‘securities’ under the Securities Contracts (Regulation) Act, 1956 and just amending the definition of ‘securities may not resolve the issue of Bitcoin regulation.
Currently, in India, there are no rules and regulations on Bitcoin by the Government of India. It seems that the government and the Reserve Bank of India (RBI) has put the issue in a grey zone by not emphasizing it as legal or announcing it as illegal. “The Bombay Stock Exchange (BSE) was established in 1875 and trading is happening since then. The Share Market’s regulator Securities and Exchange Board of India (SEBI) has been established in 1992. So does that mean share market was illegal before 1992? The answer is ‘no’. The awareness regarding share market came only after Harshad Mehta’s scam in 1992. The Government of India learned a lesson from the scam and then regularized the share market under Security Annexure Board of India 1992. So are we waiting for another scam related to cryptocurrency to make it legal?” asks Sinha. He further adds, “Today cryptocurrency has become a global product. It is neither a currency nor a derivative. I personally feel it should be included in the securities contract law as a security and should be treated as equity with KYC and other formalities.”
Government’s concern of trading in Bitcoins
To avoid uncertainty among the common man, the government should introduce taxation norms or laws to regulate the space. The delay will only add to the confusion and discourage people from investing in virtual currencies. Sinha flags certain areas of concern of Indian regulators and the solutions to it.
Cross-border terrorism – The Government of India can create certain bracket by limiting the transactions to a certain amount. If any person does any heavy transaction the KYC will help the bank to notify it. If the transactions are government recognized then it helps to avoid cross-border transactions.
In the case of heavy transactions, banks are always notified. Similarly, in cryptocurrency, there are digital wallets that keep a track of every minute transaction. For instance, if any funds are transferred through cryptocurrency from any foreign countries in our country then with the help of KYC it can be notified. The government should create a bracket mentions a specific number of Bitcoins that can be credited to an account. If the user exhausts the limit then it can be easily brought to the notice.
There are several reports of cyber criminals hacking virtual currencies around the world. There are many fake virtual currencies that pop us every day exposing users to risk their money. These currencies do not have any value or digital wallet.
Crypto usage in India is quite small as compared to the rest of the world. Amidst regulatory uncertainty about cryptocurrency, there is a high demand in the sector, especially in the metro cities. The virtual currency related jobs have caught the fancy of many Indians and in the last few months, our country has witnessed a significant growth in the employers as well as employees in the crypto sector. “The introduction of cryptocurrency by the government will have a positive impact on the employment sector. For instance, two decades back, the share market was seen as a gambling and with time people have started recognizing it. Today there are several channels that run 24*7 providing information only on equity and share markets, creating many employment opportunities. If Bitcoin is recognized then a different vertical on employment will be generated,” says Sinha.
Laxmicoin – Indian version of Bitcoin
If reports are to be believed, Laxmicoin – promoted as an Indian version of Bitcoin – has sought clarifications from regulatory authorities. The name ‘Laxmicoin’ is derived from the Hindu goddess of wealth Lakshmi. It seems that the RBIs warning against the use of virtual currencies is proving a hurdle into the launch of Laxmicoin.
Advocate Sinha seconds the decision to have our country’s own cryptocurrency. Sinha says, “It is still unofficial and has not yet been confirmed by the government of India. In case, if the government has any plans to introduce it I feel we all should wholeheartedly welcome it. India has no virtual currency yet. Bitcoin is introduced in Japan and is a legal tender there.” The government should understand the current structure and legal implications and suggest a framework for regulation of such virtual currencies. Also, new products like patents, copyrights, and trademark will be introduced and proper guidelines for its smooth functioning should be made.
There were reports of the Income Tax department has carried out surveys and has sent legal notices to over 5,00,000 investors who earned profit from Bitcoin.
-By Mr Pankaj Sinha an Advocate, Founder of Right Direction
As the Founder of Right Direction, Pankaj Sinha is heading a full service legal Team of skilled advocates are who are well-versed in providing excellent counsel in all aspects of litigation and non-litigation matters – criminal cases, corporate/trade/industrial disputes, cyberlaw cases, divorce/domestic cases, medicolegal cases , real estate/property disputes, Banking Law and consumer protection/dispute cases etc. With nearly fifteen to twenty years of legal experience, we guide clients from different sectors through various legal roadblocks.