Cryptocurrencies are now occupying the attention and fantasies of indian middle class despite the serious risks related with their trading. Crypto exchanges are emerging as formal players even in the absence of a specific cryptocurrency regulation in the country. According to provisional estimates, as of January 2022, there were nearly 10 to 15 million (10 crore figure is also there) investors are there in India holding more than US$5.4 billion worth of virtual currencies. In the 2022 buget, the governmetn has imposed a 30% tax on income from crypto asset earnings. In this context, there are numerous curious questions related to cryptos.
Whether crypto currencies are legal currencies?
Legal currencies are called legal tender currencies which are issued and regulated by the central banks. Crypto currencies are not issued by the central banks and hence are not legal tender money (currencies in circulation are legal tender money).
How far it is fair to say that cryptos are currencies though they are not legal tender currencies?
The crypto currencies are not formal currencies. Still, they are used for payment purposes. Their value is not stable. Payment is made based on the current value of specific cryptos. The formal world including the RBI and other institutions are not recognising the money function of cryptos. It is the informal, speculative and the illicit sectors which are using cryptos as currencies for payment purposes. But at present, cryptos are popular as assets rather than payment devices.
What are the main problems with crypto currencies?
The crypto currencies are used for illegal purposes like criminal activity financing, to avoid taxes etc. by several people.
Is there any law to regulate crypto currency trading in India?
There is no specific regulation for controlling cryptocurrency trading in India. They are considered as assets like gold, commodities, real estate etc. The trading arrangement for crypto currencies is similar to that of gold and other widely traded assets. Still, efforts for their regulation is going on.
As an interventionist measure, the government has introduced a 30% tax on crypto assets by defining them under Virtual Digital Assets.
How has the current crypto regulation evolved in India?
Initially, the RBI issued several directives to the public against trading and investment in crypto currencies. In 2018, the RBI prohibited banks and NBFCs not to provide account facilities to crypto exchanges. Payment facilities to entities related with crypto trading was also banned. But in 2020, in a remarkable judgement, the Supreme Court quashed the RBI prohibition. It is this SC order that function as some sort of a legal base for the activities of entities trading with cryptos right now in our country. After the SC order, the RBI reinstated banking and other facilities to crypto entities.
As a result of the SC order and the reversal of restrictions by the RBI, several crypto exchanges were re-entered, and new players emerged. Now, crypto currencies and their activities are done in a formal way. Several of crypto exchanges are working in the country now. There is nothing wrong in investing in crypto currencies though the inherent risk related with them are very high.
What are crypto currency exchanges?
Cryptocurrencies exchanges are online platforms where trading in crypto currencies is conducted. Under these exchanges, cryptos are exchanged for legal tender currencies. They work like the stock market. But the difference is that in the stock market, there is a strong regulator – the SEBI and there are several accessory institutions to facilitate share trading like CCIL, NSDL, stockbrokers etc. All these mechanisms collectively give protection to the investors in shares and promotes the activity of fund mobilisation for companies. In the crypto currency exchanges such regulatory and facilitatory entities are not present. Recently crypto exchanges demanded SEBI regulation. Based on the mode of operation, the crypto exchanges are divided into centralised exchanges and decentralised exchanges.
How are transactions conducted in the crypto currency exchanges?
Trading in crypto exchanges includes exchange of crypto currency like Bitcoin for rupee or dollar and vice versa. The exchanges charge a fee for conversion.
Whether crypto revenues are taxable?
According to the tax department, income from crypto trading is subjected to capital gains tax.
Whether there is a specific regulation for crypto currencies in India right now?
The current phase is considered to be a transitional one. There is no specific regulation for crypto currencies. Still, we badly need one. This is because cryptos are not like ordinary physical assets like gold and natural resources. They are even different from financial assets like equities and bonds. Crypto currencies are stored in a digital way, can be transferred more easily and their transactions are not officially monitored. They are virtual products where technology plays a prominent role. In this sense, there is every likelihood for theft, excess speculation that is dangerous for investors, use of cryptos for illegal purposes, emergence of a parallel asset sector with dubious transaction orientation etc.
In this context, there should be some specific regulation. The government is also thinking about such a regulation.