There is a growing interest in Bitcoin in particular and cryptocurrencies in general in India in 2021.
But many have questions about the legality of cryptocurrencies in India like below:
- Is Bitcoin legal in India in 2021?
- Can I invest in Bitcoins legally in India?
- Is cryptocurrency trading legal in India?
- Is Bitcoin safe and legal?
- Are cryptocurrencies legal in India?
- Are Bitcoins safe and legal in India?
- Is Bitcoin approved by the RBI?
- Is Bitcoin banned in India?
So as of 2021, what is the status of the legality of cryptocurrencies in India?
Let’s first list down what we know for sure:
- In 2018, the RBI, in essence, banned cryptocurrencies in India. What was said was that “The Government does not consider Cryptocurrencies “as Legal Tender or Coin” and will take all measures to eliminate the use of these Crypto Assets in Financing “Illegitimate Activities” or a Part of the Payment System.” There can be different interpretations of this statement which may lead one to believe either it was banned or it was still not fully banned. I am no law expert (though I am from a family of lawyers) so I won’t hazard a guess. The general view was that in 2018, the Indian government did put curbs on Bitcoin and other cryptocurrencies. Here is the RBI notification banning cryptocurrencies in India in 2018.
- In March 2020, the Supreme Court of India retracted the RBI’s 2018 cryptocurrency ban (link).
- In 2021, there is still some confusion about the legal nature of Bitcoins in India. Though the Supreme Court has scrapped RBI’s 2018 circular banning cryptos, the Indian banks are still not sure. Banks look up to RBI for guidance and depend on RBI to tell them what to do. And as of now, RBI hasn’t updated its stance after the Supreme Court ruling and advised the banks about what to do. As a result, many banks are forcing their customers to ‘not use’ their bank accounts for cryptocurrency transactions. As of 31st May 2021, RBI has issued a new circular (link) addressing this issue. As per the circular, RBI has clarified and asked the banks to stop citing its 2018 circular (which was quashed and set aside by Supreme Court in March 2020). Several banks have been using this circular to persuade their users against cryptocurrencies.
So what can be made out from all this is that as per the latest court ruling, trading in Bitcoins and cryptocurrencies is not illegal in India. It’s just that RBI is yet to come clean on the new ruling by Supreme Court. In my view, banks aren’t at fault. SC ruling applies to RBI and not the banks directly. So it’s RBI that should come out and inform banks what to do. Irrespective of whether it’s to support or to dissuade crypto transactions.
But there is another angle here – As per an Economic Times article (link), “the Supreme Court in its 2020 judgement had held that the RBI had a responsibility to safeguard the “public interest, interests of depositors and interests of the banking policy. In the event RBI has overwhelming evidence of cryptocurrency posing an immediate threat to the banking system, they have the authority to issue a fresh circular banning banks from dealing with cryptocurrency exchanges.”
Assuming Bitcoins are legal in India, my view is that investing or not investing in cryptocurrencies depends on multiple factors. Do read Should I invest in Bitcoin in India? Or you might be interested in other crypto Altcoins and may want to know Which crypto Altcoin other than Bitcoin to invest in? By the way, in crypto lingo, Buy-and-Hold is often termed as HODL. In case you are ever confused What is HODL?
And if you want to know how much to invest in cryptos, then do read What percentage % of portfolio to invest in Bitcoins?
Also, many readers doing SIP in mutual funds wanted to know about doing regular monthly purchases of different cryptocurrencies. If you are interested, do read about SIP in Bitcoins and a comparison of Bitcoin Vs. Mutual Funds.
As of now, cryptocurrencies are not illegal in India. But they are unregulated. And from what is known in the public domain, the Indian government is exploring bringing in regulation in the presently vague cryptocurrencies soon.
An interesting development happened in March 2021. According to the latest amendments to the Schedule III of the Companies Act, 2013 (link), the Government of India has directed that the companies now need to disclose their investments, profit or loss, amount of holdings, etc. in cryptocurrencies.
In a way, this indicated that the government isn’t exactly too anti-crypto as of now. But who knows what might lead to a change in heart later on.
There is another development – the government is expected to soon bring in a new bill titled “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”. It is said that though it intends to ban all private cryptocurrencies in India with certain exceptions, it also talks about providing a framework for creating a state-backed “official digital currency of India” that will be issued by the RBI.
So if this bill bans all private cryptos, then what will happen to the existing Bitcoin investors and Bitcoin traders? I think that in the event of a ban on trading, mining, and holding cryptos, the legal structure may seek declarations of holdings and transactions retrospectively from investors and traders and allow some time (like 3-6 months) for them to exit their holdings within a deadline. That’s my guess. Or it’s also possible that there may not be a complete ban and instead, have regulations allowing crypto trading after strict KYC norms and reporting and taxation. But if India does ban Bitcoin and cryptocurrencies (that is, it goes for an India Crypto Ban), then it will be the first major country to do so. You can check the legality of Bitcoin by country.
I was reading an interesting report by HDFC titled Cryptocurrencies: Fad or Forever (link). As per the report, there are close to 1 crore Cryptocurrency holders in India who collectively have about 1.36 Billion US Dollars.
Interestingly, RBI regulated HDFC Bank is one of the SIB or Systematically Important Bank of India (one of the safest banks in India) and as a matter of fact (as per the report), it thinks that “it is just a matter of time before Indian investors have legal access to Crypto plays.”
That is it.
As of now, there is a lack of clarity with respect to cryptocurrency regulation in India. But whether Bitcoin is legal in India or not will very soon become clear as it seems that the regulator is in the works behind the scenes and the Central Banks has itself now stepping into the Crypto game.
I hope you found this article on Is Bitcoin legal in India (2021) or not useful.