Is Cryptocurrency Legal in India?

In recent times, cryptocurrency has gained huge popularity as a large number of investors, even belonging to middle or lower class families, are attracted to it. However, despite having such excitement, the legality of cryptocurrency in our country is not very clear and a lot of doubt emerges in the minds of investors. In this article, we will try to figure out whether trading in cryptocurrency is legal or not? or Is Cryptocurrency Legal in India? Further, we will explore the recent stance of the government regarding the crypto market in India.

What is Cryptocurrency?

In simple terms, cryptocurrency is a type of digital money that uses a technology called “cryptography” to secure its transactions. Cryptography is a method in which sample data is converted into complicated codes, which are very difficult to crack. They are much more secure than real money.

Cryptocurrency is generally considered as the subset of digital currencies, alternative currencies and virtual currencies. In 2009, Bitcoin was the first cryptocurrency that was introduced. In the last decade, a large number of currencies came into the market like Litecoin, Ethereum, Zcash, Dash, Ripple, etc. Given the strong focus on a cashless economy, these currencies have become quite popular among the masses. So, after knowing about cryptocurrency, the question arises that is Cryptocurrency legal in India?

Is Cryptocurrency Legal in India?

In our country, the validity of a currency is determined by the Reserve Bank of India (RBI). It is the apex bank by which currencies in the form of “legal tender” are issued. These currencies are backed by a sovereign guarantee. So, is cryptocurrency legal in India?

However, the cryptocurrency is not issued by the central bank of the country and neither have they been recognised as a legal tender by the government. But, it doesn’t mean that cryptocurrency is illegal in India.

Presently, there is no law governing these currencies in the country. The situation regarding their legality is quite complex as no authority explicitly declared them legal or illegal.  It is just like the internet; it is free and used by billions of individuals,  but no one owns or controls it. Similarly, trading in cryptocurrency is undertaken in the absence of any special law in this regard. In India, just like other commodities i.e., gold, silver, etc. are traded without any substantial law in place, similarly, cryptocurrencies are traded freely. you can read about “How does Cryptocurrency works” in another article.

Though crypto is not a legally backed currency, it is based on the complex peer-to-peer powerfully coded systems, which is recognised throughout the world. The crypto can be traded online and these currencies are generally considered digital assets.

The Battle of Legality

In the year 2013, the Reserve Bank of India (RBI) came up with a circular warning the general public while dealing in Bitcoins or other virtual currencies. Given the seriousness of the matter, the Government of India constituted a high-level Inter-Ministerial Committee to report on the various issues regarding cryptocurrency in the Country. In 2019, the committee submitted a report with a recommendation to impose a blanket ban on private virtual currencies in the country.

While the government was still thinking over the report, the RBI came up with another circular that prevented all the commercial, small finance banks, payment banks and NBFC from dealing in cryptocurrency in the country. Further, these banks were also restricted to provide services to those small entities which are dealing in virtual currencies. This circular has broken down the entire crypto exchange market in the country.

The Turnaround with the Supreme Court Judgement

In 2020, the honourable Supreme Court in a well-conceived judgement struck down earlier the circular issued by the RBI. The apex Court held that as per Article 19 of the Constitution, each and every individual of the country is empowered to profess any trade as per his choice. The government can’t interfere in the personal space of an individual.

This judgement revived the crypto market in the country with almost all the large scale banks starting facilitating crypto exchange services.  However, a few days back, the RBI Governor in a press release stated that they have conveyed their major concern regarding virtual currencies to the government. In the meantime, the investors must be varied and should perform due diligence before investing in the crypto market.

Moreover, in the last week of March 2021, the Ministry of Corporate Affairs (MCA) amended schedule III of the Companies Act, 2013. With this amendment, the companies need to disclose all their trading related to cryptocurrency. It means that the companies need to share the profit or loss regarding all the transaction-related crypto, details of deposits etc.

Regulatory Aspects of Cryptocurrency in India

As already discussed above, the main issue regarding crypto is that they are unregulated and it is the main thing that is bothering the government the most. There is no central authority that can act as a watchdog on all the crypto-related activities in the country.

The trading in other securities like mutual funds, bonds, etc are governed by the Securities and Exchange Board of India (SEBI), but there is no such regulator for crypto.

Whether Income from Crypto is Taxable in India?

Cryptocurrency is not mentioned under the Income Tax Act and no such rules have been made in this regard. But, it doesn’t mean that you can avoid paying taxes on the profit earned through the crypto market. The profit through that medium is treated as income from “business activities” and taxed accordingly. This income is also subject to capital gain taxes.

Legal Aspect of Betting and Gambling Laws in India

Development Area of Cryptocurrency in India

The Government of India is now planning to clear all the dust regarding cryptocurrency by making a legislature in this regard. A new bill titled “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” can be presented in parliament very soon. This bill aims to impose a complete ban on private cryptocurrency in the country with certain exceptions. However, it will be quite interesting to see which currencies will fall in the criteria of private cryptocurrency. This bill will provide a framework for creating official virtual currencies, issued by the RBI.

How does cryptocurrency works?


It can be inferred that there is a lack of clarity regarding the legality of cryptocurrency in the country. There is a diverse view of Government, RBI and the Supreme Court. So, well-structured legislation dealing with all the matters relating to virtual currencies is the need of the hour.

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