Cryptocurrency and Evaluation of Government Regulations under Budget of 2022

 

Name – KAUSHAKI KUMARI

College - DR CV RAMAN UNIVERSITY

Introduction

With the advancement of technology the medium and types of currencies are also changing from paper money to plastic money (credit cards/debit cards) and now to digital currency. The framework of finance management has surely advanced. Crypto currencies gained their existence from the late 90s but it was in the 21st century when cryptocurrency for the first time charmed the whole world in 2008 by the introduction of first ever digital currency BITCOIN by satoshi nakamoto.

What actually is crypto currency?

Crypto currency is a virtual asset or currency stored in a digital wallet. It is an independent asset which has no centralized policy for its regulation. It  is a currency designed to be exchanged through the medium of the internet that is independent of any centralized organization such as the government or banks. One can buy crypto currency through online mining or by using credit cards from companies which act like an exchange. There are different types of crypto currencies such as bitcoin, ethereum or dogecoin etc.

Just like other currencies such as USD, INR, YEN and CRYPTO CURRENCY is now used a currency in digital world, using which currency holders can send money from one country to another without the intervention of any national or international authority and hence eliminating the middle man of any monetary transaction.

The  market of digital currency is like a water wave full of ups and downs and that is why RBI in 

2013 warned about the purchase of these currencies, the main concern of RBI is the regulation and distribution of these currencies and raising apprehension of money laundering and corruption.

JOURNEY OF CRYPTO CURRENCY REGULATION IN INDIA

When we go back in time one can easily spot the growth in the indian finance and the type of currencies used from barter system to having our own currency rupee india has came a long way and with advancement in technology and mobile phones as medium to transfer money various methods such as UPI,Paypal, Phonepe etc. which are governed by the government were introduced but one such alternative is Crypto currency which emerged in the western world quite before entering the indian market without any regulatory policies. The journey of crypto currency was sure a roller coaster ride-

2008: emergence of crypto currency

In the name of bitcoin cryptocurrency was introduced in the market for the first time by satoshi nakamoto. It was considered a peer to peer electronic cash system.

2013: RBIs issues first circular concerning cryptocurrency.

The circulation and investment in crypto currency picked up pace in India, by reviewing the huge investments and exchange of these currencies RBI issued a circular warning about the irregularity and security of assets.The Indian central bank RBI passed a resolution that private virtual currencies are not backed  by the RBI.

2016-2018: Demonetisation and banking ban of crypto by RBI

For the first time, the government issued notice in February 2018, which defined cryptocurrencies as "legal tender" and demanded that all exchanges register with the reserve bank of india as per the provisions of the RBIs prevention of money laundering (maintenance of records of transaction and other provisions) rules,2005.

Meanwhile the sudden step of demonetisation by the government has increased the risk of more people entering the crypto market so in order to regulate and take control over the digital currency RBI issued guidelines for banks to not  provide any financial help to crypto based companies or businesses dealing with it. The banking ban on crypto was a bold step by the RBI in order to secure the unbalanced financial economy of india. The ban came to effect from 5th jan 2018.

The year 2018 was a tough year for virtual currency and its owners due to sudden demonetisation and ban on financial assistance to crypto businesses, moreover RBI also asked the banks to cancel all current and future loans to any individual or company indulged in cryptocurrencies. This huge step by the RBI hit the crypto market at the rock bottom and the Indian crypto market saw its lowest prices on 8th November, 2018. Meanwhile the demand for positive regulation of crypto started in India and the RBI announced the making of India's own digital currency CENTRAL BANK DIGITAL CURRENCY(CBDT).

India being a huge market of digital currency in future, has alerted the government and the RBI. RBI issued warnings for crypto currency holders and the government was all set to put a complete ban on crypto market in India, which could have been the biggest ban of crypto currency by such a huge nation, but it was not the end of the digital currency.

March 2020: Supreme court strikes down the crypto banking ban

A plea was made to review the decision of RBIs crypto banking ban in the supreme court of India which was declared unconstitutional by the highest judicial power. The order was struck down by the supreme court of india. The order of RBI was considered a blanket ban on banking sector providing services to the companies, effectively rendering most crypto currency exchanges illegal.

Internet And Mobile Association ... vs Reserve Bank Of India on 4 March, 2020

Bench: Rohinton Fali Nariman, S. Ravindra Bhat, V. Ramasubramanian

In a judgment of Supreme Court of India, given on 4rth march, 2020 in the case of Internet and Mobile Association of India v. Reserve Bank of India, the court bashed down the circular issued by Reserve Bank of India. The circular issued, tends to put a ban on the trading of virtual currencies also known as crypto currencies. The court has the view that the restrictions imposed by the Reserve Bank of India on banks and other entities in regard to the trading of virtual currency is unfair and therefore declared the restrictions to be un-viable. {SOURCE:https://www.legalserviceindia.com/legal/}

The RBI’s main concern about cryptocurrency was, it cannot be traced or centralized so that it can disrupt the financial institutions. But the RBI had failed to prove their argument on the court with reasonable grounds. The legal counsel from the crypto community argued that RBI is assuming things without doing a proper study. The Supreme Court criticized RBI for not looking to develop software instead of banning the whole thing.

2021: Announcement of crypto bill

The committee report recommended a blanket ban on all private cryptocurrency ownership in India but after the critical comments of The Supreme Court of India , the government wanted to introduce a new bill titled “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.”

{source:https://freemanlaw.com/cryptocurrency/india}.The congress passed a bill to officially recognize crypto currencies. From an outright ban on cryptocurrencies in 2016 to an upcoming bill for regulation was considered a huge milestone in years for all crypto holders and the digital market. The government declared that the initiative to regulate cryptocurrency will be rolled out in a phased manner in the upcoming two years.

 2022:budget of 2022-23(new law on crypto currency)

The union budget presented by nirmala sitharaman for the year 2022-23 proposed taxation of crypto assets effective from 1st April,2022.

Crypto investors will have to pay an income tax of 30 per cent plus cess and surcharges from April 1. This treats the crypto investments similar to the winnings from horse races or other speculative transactions.Investors will also be charged 1 per cent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient. The tds provision will come to effect from July 1,2022.{source:https://economictimes.indiatimes.com/markets/cryptocurrency}.

The government also announced a two tier treatment for crypto assets which will be taxed at 10%. India is facing a crossroad whether to prioritize consumers and financial system from the risk of crypto assets by prohibition or to regulate the growth of the vibrant crypto market to create more jobs, promote innovation and applaud entrepreneurs for their work in the field of digital currency.

 The government is taking a close look at cryptocurrencies to bring legality and regulate these assets for the financial security of the country. The response of RBI regarding digital currency is mixed, the regulation somehow will help to  spark up the wave of digital currency in India.

Conclusion-

Although cryptocurrencies are controversial, they  still can be regulated so that it can become risk free from financial threats. Over the last 10 years the virtual currency ecosystem has shown exponential growth and Regulation of digital currency can be done by closely observing and learning about the digital market. The world of crypto currency is a remarkable one. It has allowed people to take control of their money and become their own bank, providing them with a sense of financial freedom like never before. But it has also come with its fair share of challenges, not least of which is the complex web of tax and regulatory requirements that currently exist in the ecosystem. The government with the joint efforts of RBI is trying to adapt with the ecosystem of cryptocurrencies and should regulate the policies to make it safer for consumers.