Legality of Cryptocurrency in India Explained

5 min readApr 8, 2021

Crypto regulation in India took a new turn in 2020: The Supreme Court proved the RBI decision to ban crypto-related activities to be unconstitutional. This shed some light on the legality of crypto in India and clarified that no bank can deny banking to traders trading in Crypto assets as long as they report and pay taxes on transactions.

Cryptocurrency adoption is growing massively in India. In the last two years, the country has seen the crypto asset market grow to USD 15 billion as well as a rising count of investors and companies, with many new exchanges currently opening up their branches in the country. This has been fueled by the Supreme Court case of 2020, which reversed the RBI ban and the new taxation clarity for cryptocurrency transactions, portrayed in the so-called CREBACO report.

CREBACO report

In terms of tax implications, the CREBACO report, made by Think Tank CREBACO and the prominent law firm Khaitan & Co, states that cryptocurrency transactions are fully taxable under Indian laws. They are liable to pay GST, capital gains tax, and corporate income tax on income generated from such activities.

The report also presented a proposal for a comprehensive regulatory framework stating that “decentralised ecosystems are unprecedented and hold great potential. We must learn from the leading countries of the world who have regulated this space, and also highlights a fact that banning something like this is not even an option. India is mainly looking at the Blockchain technology and the possibilities of crypto assets cannot be ignored”.

2018 RBI ban and 2020 Supreme Court Decision

When it comes to the legal history of cryptocurrencies in India, the first drawback was the 2018 RBI ban. Back then, RBI issued a circular that directed the entities-

(i) Not to deal in virtual currencies nor to provide services for facilitating any person or entity in dealing with or settling virtual currencies;

(ii) To exit the relationship with such persons or entities, if they were already providing such services to them.

That ban, however, proved to be unconstitutional. In 2020, The Supreme Court of India overturned the RBI decision. The Court found that a blanket ban was disproportionate and that virtual currencies had caused no visible damage to banks regulated by the RBI. As such, the Court held that the impugned circular was “manifestly arbitrary, based on non-reasonable classification and it imposes disproportionate restrictions”.

This judgment offers hope for cryptocurrency traders in India. Now, no bank can deny banking to traders trading in crypto assets, as long as they report and pay taxes on their transactions.

The recent tax developments and the Supreme Court rule can be viewed as a hint that crypto will not be banned in India, that the trend is likely to continue and that the outlook on cryptocurrency regulation in India must be optimistic.

Growth of cryptocurrency exchanges in India

The legal clarity and the Supreme Court ruling has made a positive impact on the industry. Since the last time CREBACO evaluated the Indian ecosystem in 2018, the crypto asset market has gone up by over 40%. This means that from the previous estimate of USD 12.9 billion, the current crypto ecosystem has grown to a potential market size of over USD 15+ billion with an investor pool of around 6 million users.

This has driven a number of exchanges and crypto-based companies to recently open up their offices in India, and with great success.

One of them is award-winning crypto exchange Coinsbit, which is opening in India under the name of Coinsbit India. Coinsbit’s features include lowest trading fees, safe transactions, telephone IVR customer support, and many more, which can be found here.

As Coinsbit India founders, Akshit Khanna, said: “We believe that India deserves blockchain & cryptocurrencies as it not only helps the crypto Investors in India but will also provide a massive opportunity to thousands and thousands of developers, technological genius minds, and entrepreneurs who can now solve the world’s most challenging problems by leveraging and using this amazing technology.”

Since its inception in 2015, Coinsbit has been one of the most trusted exchange platforms for cryptocurrency traders worldwide. Coinsbit does daily transactions worth 2 billion $/day and has a user base of around 6–7 million clients. It looks to become the foremost trading ground for a market that’s just beginning to see cryptocurrency’s potential. It operates in compliance with the guidelines set out by the government of India at all times.

And there are others opening in the country too. In the case of cryptocurrency exchange WazirX, “for the full financial year, trading volume during the financial year 2020–21 on WazirX has surged nearly 2,600% to $8.4 billion year-on-year”. Moreover, Between January to May 2020, Paxful reported 883% growth from around $2.2 million to $22.1 million. Even a Sequoia-backed CoinSwitch Kuber, which allows virtual currency purchases in Indian rupees, was founded during the coronavirus economic downturn. It managed to add over 200,000 users, reporting volumes of about $200–300 million.

Conclusion

An outright ban would only fuel the black market — something that would not be of benefit to anyone. As the CREBACO report shows, big businesses are overwhelmingly looking for clarity in the area, and, with the latest developments in taxation, the trend is likely to continue.

As stated in the report itself: “Innovation and technology should not be controlled or banned. If they are banned, the country of the ban is usually punished, whereas other jurisdictions expedite development. Cryptocurrencies are here to stay — Better regulate than ban them.”

About Coinsbit

Coinsbit India is a joint venture between Cryptic Coinsbit India and Prof-it Limited, intending to bring the best cryptocurrency exchange platform to India. With its headquarters in Estonia, the popular cryptocurrency exchange platform has a reported user base of 5 million users and a monthly transaction volume of around $30 billion-plus USD. It was named the best 2018 crypto exchange at Asian Blockchain Life, 2019.. Their strengths include well-timed order execution, local market insight, and multi-tier crypto asset security management bringing a full suite of services that a blockchain and a global exchange provides to the users.

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