5 Things To Expect If Bitcoins Are Legalized In India
India has been a front runner, when it comes to new technology adoption and blockchain technology has been no different. Right from the possible proposal to legalize bitcoins, other cryptocurrencies and ICOs, India has engaged itself in the cryptocurrency market for some time now. The extraordinary rise in the value of Bitcoin in the recent past, has created ripples in the investment market. On 19th November, Bitcoin value mounted an all-time high of $ 8000, thus emerging as the fastest growing asset in the recent times.
Developments in the Indian cryptocurrency space
The cryptocurrency revolution has touched India in a great way. As of June 2017, India accounted for more than 11 per cent of the global cryptocurrency trade. This bullish trend is a clear indication of the growing fascination of Indians, towards Bitcoin as a lucrative investment proposition. Bitcoin exchanges operating in India have done a fairly good job of alleviating the negative sentiments of people, on this front. However, with the ever increasing user-base with each passing day, it might not be long before we witness the government inching towards compliance and further legalizing crypto currencies in India. At the same time, blockchain, the technology that underlies digital currencies, is also of immense interest to the regulators.
Interestingly, International Bitcoin exchange BitBay has started operations in India, as part of a move geared towards the expansion of its cryptocurrency trading business. This development comes at a time when the Indian government is still indecisive about its stance on the legalisation of cryptocurrencies.
It has been reported that the Indian government was considering a proposal to introduce its cryptocurrency similar to Bitcoins. As per sources, the proposal was discussed by a committee of government officials, and the panel found the idea of setting up and running blockchain for financial services useful. They also added that the government might be naming its cryptocurrency ‘Lakshmi Coin’. Besides, bitcoin startups in the country have joined hands to form Digital Asset and Blockchain Foundation of India (DABFI), to promote virtual currency market. It is expected that if the government and DABFI workout a proper compliance framework and documentation requirements for customers, then these businesses might see light of the day and thrive.
Current government stand - the crypto-currency is neither illegal nor legal in India
The discussion on whether crypto-currencies should be banned or regulated has been on for some time. The Reserve Bank of India regards cryptocurrencies as a violation of the country’s existing foreign exchange norms. This is because the conversion of Bitcoins into foreign exchange does not currently fall under the purview of the central banking institution, making such transactions highly unsafe and vulnerable to cyber-attacks.
The government is considering the introduction of a regulatory regime for virtual or crypto-currencies, such as Bitcoin, that would enable the levy of the Goods and Services Tax on their sale.
It is being speculated that cryptocurrency trading might fall under the purview of the stock market regulator, Securities and Exchange Board of India (SEBI). The idea is to treat such currency in a manner similar to gold sold digitally, so that it can be traded on registered exchanges in a bid to “promote” a formal tax base, while keeping a tab on their use for illegal activities such as money laundering, terror funding and drug trafficking.
So, if Bitcoins are legalised in India, the following would happen:
1. Bitcoins would fall under the purview of RBI’s 1934 Act. Reserve Bank of India Act, 1934 is the legislative act under which the Reserve Bank of India was formed. This act along with the Companies Act, which was amended in 1936, were meant to provide a framework for the supervision of banking firms in India.
2. Bitcoin investors would be taxed.
3. RBI would issue guidelines regarding investment and purchase of Bitcoins.
4. If any foreign payment is made through Bitcoins, it would fall under the purview of FEMA Act. The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India “to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India”.
5. Returns from investment in Bitcoins would be taxed.
If bitcoin is banned in our country, like with the encryption and “back doors” debate, bad actors will continue to find means of using bitcoin through circumvention technologies, and law-abiding users of virtual currencies will bear the brunt of the action. It is not likely that the government, with focus on promoting technology, innovation, and financial inclusion, will resort to a knee-jerk ban of bitcoin. No major economy has done this. However, if there is a ban, all parties will have to comply with the same, subject to their remedies under law. Instead, the industry can minimize fraud and co-operate with the government in law enforcement, through self-regulation with Know Your Customer (KYC), Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT), Suspicious Transaction Report (STR) certifications and norms. Let’s hope for the best.
(The author is the Chief Architect, Internetdollars.org and Co-founder Digital Assets and Blockchain Foundation of India(DABFI)
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