INTRODUCTION
Cryptocurrency is a virtual currency that works without any banks or government, rather using encryption and decentralised networks to secure transactions and maintain a public ledger. Cryptocurrency, unlike any other traditional currency, is purely a digital asset. It is transferred from person to person through digital wallets.[1]
In India, the adoption of cryptocurrency has rapidly increased, especially in smaller cities. The market is projected to grow in India, from 2.5 billion US dollars to over 15 billion US dollars by 2035.[2] But the government has failed to bring supportive regulations for this sector, even after imposing taxes, such as a 30% tax on gains[3] and a 1% TDS on transactions[4]. A regulatory bill was introduced in 2021 and remains unpassed, and comprehensive legal clarity is still pending as of mid-2025. This situation escalates the chance of criminal activities and loss of opportunities.[5]
HISTORICAL BACKGROUND
Bitcoin is a cryptocurrency that was introduced to the world by Satoshi Nakamoto in 2009 to enable online payments that can be transferred from one party to another without any financial intermediaries. The technology of decentralised blockchain was applied to ensure transparency and security.[6]
The cryptocurrencies, including Bitcoin, started to attract attention in India around 2013. In response, the Reserve Bank of India (RBI) in December 2013 warned users of several risks related to cryptocurrency.[7] In April 2018, the RBI issued a circular that effectively barred Indian banks from providing services to cryptocurrency exchanges.[8] Subsequently, the circular was challenged in the Supreme Court, and the Court struck down the RBI ban.[9]
EXISTING LEGAL FRAMEWORK
In India, currently, no legislation specifically addresses cryptocurrency or digital assets. But some existing statutes build a legal landscape for it, such as the Finance Act[10] which makes Virtual Digital Assets (VDAs) taxable, under which cryptocurrencies also fall. Section 115BBH of the Income Tax Act[11] imposes a flat 30% tax on gains from the transfer of VDAs, and section 194S[12] mandates 1% of TDS on the transfer value at the time of each transaction. Beyond taxation, several other laws are indirectly relevant:
- Information Technology Act[13]: Addresses cybercrimes, data protection, and digital signatures, which may apply to crypto exchanges and wallet providers.
- Foreign Exchange Management Act[14]: It regulates the cross-border crypto transactions, though its application remains ambiguous due to a lack of clear classification.
The concept is absent whether cryptocurrency is a security, asset, or currency. This ambiguity left the consumers and the businesses exposed to various risks.
JUDICIAL INTERVENTION
The landmark case, IAMAI v. RBI[15], gives a judgment where the circular given by the RBI in April 2018 prohibiting the banks from servicing parties dealing in virtual currencies was struck down by the court. The court’s reasoning was based on the principle of proportionality. While acknowledging the RBI’s regulatory authority over banking institutions, the court found that the circular infringed the right to trade and profession under Article 19(1)(g)[16] of the Constitution. The court also determined that the RBI failed to show tangible harm caused by cryptocurrency exchanges and found that alternative, less restrictive regulatory measures existed to address the concerns of money laundering and terrorist financing. The court established that the regulatory bodies can’t impose complete restrictions on the emerging technologies without demonstrating proportional necessity, especially when it impairs legitimate business activities.
REGULATORY DEVELOPMENTS (POST 2020)
- Cryptocurrency Bill, 2021
The 2021 bill for cryptocurrency, intended to replace the 2019 bill draft, sought to ban “private cryptocurrencies” with exceptions for blockchain infrastructure. Although the bill was listed for parliamentary introduction, it was never tabled. By late 2021, the government shifted toward a “calibrated approach” by acknowledging crypto’s technological potential while prioritising risk mitigation.[17]
- G20 Presidency (2023)
Under India’s G20 leadership, the IMF-FSB Synthesis Paper established a roadmap for crypto regulation, emphasising:
- a) Risk-based oversight: Addresses financial stability, investor protection, and illicit finance.
- b) Tech-neutral frameworks: Aligning regulations with asset functions rather than technological labels.
- c) Global South priorities: Integrating EMDE concerns on capital flow volatility and monetary sovereignty. India advocated for harmonised anti-money laundering standards and cross-border cooperation, later endorsed by G20 leaders.[18]
- RBI’s CBDC Pilots
In November 2022, the wholesale CBDC pilot was launched, which targeted interbank settlements for government securities but struggled with adoption (₹0.08 crore circulation in 2024). In contrast, the retail CBDC pilot prioritised financial inclusion, achieving ₹237.8 crore circulation by 2024 through partnerships with 50,000 merchants.[19]
CONCLUSION
In India, the legal landscape for cryptocurrency remains in regulatory uncertainty despite significant market growth and judicial interventions. While in the case of IAMAI v. RBI[20], the Supreme Court established an important precedent for crypto rights, the absence of comprehensive laws continues the uncertainty. As the crypto market in India is projected to reach 15 billion US dollars by 2035[21], a delay in regulations can increase the risk for investors and enable illicit acts. Balanced regulatory actions are essential to utilise cryptocurrency’s potential and safeguard financial stability and consumer interests.
Author(s) Name: Pragnan Samaddar (Department of Law, University of Calcutta)
References:
[1] Jake Frankenfield, ‘Cryptocurrency’ (Investopedia, 22 May 2022) https://www.investopedia.com/terms/c/cryptocurrency.asp accessed 15 May 2025
[2] Suvashree Ghosh and Anirudh Suresh, ‘Crypto trading booms in India’s interiors as job growth, incomes disappoint’ (Reuters, 25 February 2025) https://www.reuters.com/world/india/crypto-trading-booms-indias-interiors-job-growth-incomes-disappoint-2025-02-25/ accessed 15 May 2025
[3] Income Tax Act 1961, s.115BBH
[4] Income Tax Act 1961, s.194S
[5] Josh Adams ‘India’s Slow Approach to Crypto Regulation’ (CCN, 13 December, 2023) https://www.ccn.com/news/india-slow-approach-crypto-regulation/ accessed 15 May 2025
[6] Pinkerton J, ‘The History of Bitcoin’ (U.S. News & World Report, 18 February 2025) https://money.usnews.com/investing/articles/the-history-of-bitcoin accessed 15 May 2025
[7] Tech Desk, ‘From outright ban to ‘clear danger’: A look at RBI’s stance on crypto in India’ (The Indian Express, 1 July 2022) https://indianexpress.com/article/technology/crypto/from-an-outright-ban-to-crypto-taxation-a-look-at-rbis-stance-on-crypto-in-india-8002837/ accessed 15 May 2025
[8] Dinesh Unnikrishnan, ‘RBI clarifies on 2018 cryptocurrency circular, asks banks to carry out customer due diligence’ (moneycontrol, 31 May 2021) https://www.moneycontrol.com/news/business/rbi-issues-circular-to-give-a-perspective-on-cryptocurrency-asks-banks-to-carry-out-customer-due-diligence-process-6966071.html accessed 15 May 2025
[9] Internet and Mobile Association of India v Reserve Bank of India (2020), MANU/SC/0264/2020
[10] Finance Act 2022
[11] Income Tax Act 1961, s.115BBH
[12] Income Tax Act 1961, s.194S
[13] Information Technology Act 2000
[14] Foreign Exchange Management Act 1999
[15] Internet and Mobile Association of India v Reserve Bank of India (2020), MANU/SC/0264/2020
[16] Constitution of India 1950, art. 19(1)(g)
[17] Press Trust of India ‘Ensure cryptocurrency does not end in wrong hands: PM Modi to democratic nations’ (The Economic Times, 18 November 2021) https://economictimes.indiatimes.com/news/india/ensure-cryptocurrency-does-not-end-in-wrong-hands-pm-modi-to-democratic-nations/articleshow/87772588.cms accessed 17 May 2025
[18] Press Information Bureau, ‘Cryptocurrency Regulation’ (PIB Delhi, 18 July 2023) https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1940536 accessed 17 May 2025
[19] Manish M. Suvarna, ‘Wholesale CBDC still on a weak track, total circulation in value terms far less than retail’ (Moneycontrol, 28 April 2025) https://www.moneycontrol.com/banking/wholesale-cbdc-still-on-a-weak-track-total-circulation-in-value-terms-far-less-than-retail-article-13006759.html accessed 17 May 2025
[20] Internet and Mobile Association of India v Reserve Bank of India (2020), MANU/SC/0264/2020
[21] Suvashree Ghosh and Anirudh Suresh, ‘Crypto trading booms in India’s interiors as job growth, incomes disappoint’ (Reuters, 25 February 2025) https://www.reuters.com/world/india/crypto-trading-booms-indias-interiors-job-growth-incomes-disappoint-2025-02-25/ accessed 15 May 2025
