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Cryptocurrency Legal Issues

This document discusses some of the legal issues related to cryptocurrency in India. It notes that cryptocurrency transactions are currently anonymous in nature and fall outside of existing Know Your Customer (KYC) norms prescribed by the Reserve Bank of India. It also explains that the Foreign Exchange Management Act regulates cross-border transactions, but cryptocurrency enables cross-border transfers in a manner that may conflict with this law. Additionally, the document outlines complications around applying India's evolving taxation rules to cryptocurrency activities like mining and transfers if it became a recognized legal tender.

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Ishaan Mundeja
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109 views2 pages

Cryptocurrency Legal Issues

This document discusses some of the legal issues related to cryptocurrency in India. It notes that cryptocurrency transactions are currently anonymous in nature and fall outside of existing Know Your Customer (KYC) norms prescribed by the Reserve Bank of India. It also explains that the Foreign Exchange Management Act regulates cross-border transactions, but cryptocurrency enables cross-border transfers in a manner that may conflict with this law. Additionally, the document outlines complications around applying India's evolving taxation rules to cryptocurrency activities like mining and transfers if it became a recognized legal tender.

Uploaded by

Ishaan Mundeja
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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4.

LEGAL ISSUES RELATED TO CRYPTOCURRENCY

Cryptocurrency is digital money that is not backed by the government. 1 It acts just like any
currency and can be used to purchase goods and services. The digital currency allows the
individuals to anonymously purchase goods and services online. The transactions entered into
with the help of bitcoins are recorded in centralised public ledger. The private nature of the
transactions under cryptocurrency provides a wide ambit for undertaking criminal
transactions. In addition to that, legalising the cryptocurrency could even lead to increase in
white collar crimes like tax evasion. The principal laws concerning Indian currency are, The
Constitution of India, 1950, The Foreign Exchange Management Act, 1999 The Reserve
Bank of India Act, 1934, The Coinage Act, 1906, The Securities Contracts (Regulation) Act,
1956, The Sale of Goods Act, 1930, The Payment and Settlement Systems Act, 2007, Indian
Contract Act, 1872. If cryptocurrency becomes a legal tender in our country, it would come
under the purview of these legislations but till then the use of cryptocurrency possess various
legal complications and issues, such as:

4.1 RBI Prescribed KYC Norms

In India, KYC (Know Your Customer) norms are prescribed by the Reserve Bank of India.
These norms require the banks to keep an up-to-date record of their customer’s identity and
monitor their monetary transactions. The norms would not be applicable on cryptocurrency as
its transactions are anonymous in nature. Thus, cryptocurrency possess a major legal issue in
this regard.

4.2 Cross Border Transfer


The Foreign Exchange Management Act, 1999 regulates all inbound and outbound foreign
exchange related transactions. The Act provides that no person should “deal in or transfer any
foreign exchange or foreign security to any person not being an authorized person; 2 The

1
Edward V Murphy, Cong. Research Serv., R43339, Bitcoin: Questions, Answers, and Analysis of Legal, 2015,
1.”

2
Foreign Exchange Management Act, 1999, Section 3
cryptocurrency acts as a cross border currency and can lead to major legal issues in this
regard.

4.3 Taxation
Taxation rules in India change continuously and dynamically, leading to a lot of
complication. The introduction of GST and its implication acts as a proof. Tax may be
applied on either the income or the expenditure. If cryptocurrency becomes a legal tender,
then first thing would be to differentiate between expenditure and income related to
cryptocurrency. If taxes are levied on cryptocurrency then those would be applicable to
mining of cryptocurrency as well as transfer of cryptocurrency and with that we need to
differentiate whether the cryptocurrency come under the category capital or income. 3

3
Nishith Desai, Bitcoins- A Global Perspective Indian Legal and Tax Considerations, March 2015, available at
http://www.indiabitcoin.com/wp content/uploads/2015/03/NDA- IndianLegalConsiderations-Bitcoins.pdf.”

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