BITCOIN INVESTMENT IN INDIA

BITCOIN INVESTMENT IN INDIA

It is in the news that Income Tax department has issued the notice to 500,000 High net-worth Individuals trading Cryptocurrencies/bitcoin exchanges across India after surveyed the major bitcoin exchange and collect information about transactions from the angle of tax evasion.

RBI on Bitcoins

As of now, there is no regulation preventing trading/buying/holding in Cryptocurrencies / Bitcoin. The RBI notification issued in 2012 and 2017 only indicate the risk involved. The gist is as under

2013-14/1261 RBI

·         VCs being in digital form are stored in digital/electronic media that are called electronic wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorized central registry or agency, the loss of the e-wallet could result in the permanent loss of the VCs held in them.

·         Payments by VCs, such as Bitcoins, take place on a peer-to-peer basis without an authorized central agency which regulates such payments. As such, there is no established framework for recourse to customer problems/ disputes/chargebacks etc.

·         There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value.

·         It is reported that VCs, such as Bitcoins, are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks.

·         There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combat the financing of terrorism (AML/CFT) laws.

2016-17 2054

It is clear from the above that the Bitcoin is not illegal in India.  RBI itself has noted the operation of Cryptocurrency exchanges hence we can say that bitcoin is legal.  Although RBI in its regulation says that there are KYC issues involved in the Cryptocurrency, why there is no regulation.  Maybe RBI treats the Cryptocurrency as the commodity even if it so, there should be the regulation under forex regulation.

Government on Bitcoin

In April 2017 the government set up an inter-disciplinary committee—chaired by special secretary (economic affairs)—to examine the existing framework of virtual currencies. The committee was supposed to submit its report within 3 months. The committee was set up to take stock of the present status of virtual currencies both in India and globally, examine the existing global regulatory and legal structures governing virtual currencies, suggest measures for dealing with such virtual currencies including issues relating to consumer protection, money laundering and examine any other matter related to virtual currencies that may be relevant. In December 2017, finance minister Arun Jaitley told the media that the government doesn’t consider bitcoin as a legal tender and it is working on recommendations for such currencies.

SEBI on Bitcoin

 In the meantime, Bitcoin gets listed on US stock exchange even FED Reserve has not recognized it. Securities Exchange Board of India (Sebi) on 20 December said that if bitcoin is considered as a commodity derivative then Sebi might regulate it. In countries such as the US, the Sebi-equivalent regulatory body is looking into cryptocurrencies. Experts say, considering cryptocurrencies are looked at as a commodity, Sebi should look at regulating them. Chairman of SEBI also said the Bitcoins cannot be ignored

Bitcoin in capital market

Modelled on the initial public offers for issuance of new shares in the stock market, some entities have begun resorting to initial coin offers to raise funds from investors, including HNIs and other individuals, who are getting lured into claims of huge returns from bitcoins and other such variants--apparently getting minted in the digital world but also reaching the real world including as wedding gifts.

Conclusion 

Though there are still no clear regulations or proper jurisdiction, the income-tax department is clear that tax has to be paid on all cryptocurrency transactions. Though there is no mention of cryptocurrencies in the Act, income tax will still have to be paid on any gains accruing from cryptocurrency transactions.  Sooner or later, we will full regulation on Bitcoin either or both by RBI and SEBI as an investment option in India. Please remember it is a very high-risk investment and hence return is also very high.