From exercising caution over Bitcoin cryptocurrency, the Government of India could finally be moving towards compliance.
As per a recent CNBC India report, a committee of finance ministry officials, IT ministry officials, NITI Aayog, and Reserve Bank officials, may be inching closer to legalizing virtual currencies in India.
The Inter-Disciplinary Committee’s report is expected to be announced by the end of July, after which the Securities and Exchange Board of India (SEBI) may be asked to step in to regulate transactions.
So, if Bitcoins are legalised in India, the following would happen:
Bitcoins would fall under the purview of RBI’s 1934 Act.
Bitcoin investors would be taxed.
RBI would issue guidelines regarding investment and purchase of Bitcoins.
If any foreign payment is made through Bitcoins, it would fall under the purview of FEMA Act.
Returns from investment in Bitcoins would be taxed.
Interestingly, the news comes around the same time when the Bitcoin trade analyst, Chris Burniske, highlighted that trades from India accounted for 10% of global cryptocurrency trade, in May.
He tweeted a chart tracking cryptocurrency trades that show India accounted for 16,754.76 coins by trade volume. It has also been ranked fourth on the Bitcoin cryptocurrency trading market.
Bitcoin And The Indian Government:
Over the past few years, despite the lack of regulations in the Indian digital currency industry, a few Bitcoin exchanges have sprung up and started operating with self-regulated trading platforms with strict Know Your Customer (KYC) and anti-money laundering systems in place. These include startups like Zebpay, Coinsecure and Unocoin.
These startups have also raised funding from investors and have slowly been building faith in the Bitcoin and digital currency sector despite skepticism from the government.
For instance, Bengaluru-based Bitcoin startup, Unocoin, raised $1.5 Mn in a Pre Series-A round from Blume Ventures, Mumbai Angels and ah! Ventures last September. Similarly, Ahmedabad-based mobile Bitcoin wallet startup, Zebpay, raised Series A funding of $1 Mn from angel investors in January 2016. And Bitcoin trading platform Coinsecure raised $1.2 Mn as part of its Series A investment round from an undisclosed investor in April 2016.
In 2015, the RBI published a financial stability report on disruptions in financial technology. In the report, it identified the importance of ‘private blockchains’ which have the potential to transform how bank back-end operations function, as well as increasing the speed of payments. The bank said that with its potential to fight counterfeiting, the blockchain is likely to bring about a major transformation in the functioning of financial markets, collateral identification, and payments systems.
In December 2015, former RBI Governor Raghuram Rajan had stated that digital currency was ‘fascinating’ and that India’s central bank could use digital currencies. He had said, “I have no doubt, that down the line, we will be moving towards primarily a cashless society and we’ll have some kind of currencies like this which will be at work.”
The Impact Of Bitcoin’s Legalisation In India:
The first impact of the legalisation of Bitcoin in India is expected to further increase trading volumes and Bitcoin activities in India by significant margins. Legalisation would also allow Bitcoin startups to address concerns over security and risks pertaining to the use of Bitcoin and eventually work towards improving its infrastructure.
Sathvik Vishwanath, co-founder and CEO, Unocoin told Inc42,
Such a stance by the government would show that they want to encourage innovations on one side and be at par with the digital needs of Indians on the other. Such legalisation also should be accompanied by the tailored regulations for this new technology to fully unleash its potential.
Legalising would also help remove apprehensions around its reliability as a currency for the average Indian consumer. On the other hand there have been reports of Bitcoin trading amounting to money-laundering and that it propagates the financing of terrorist outfits.
More so, to assuage these fears, Bitcoin startups in India are implementing multiple security checks. All Bitcoin companies seek a valid ID proof from users that include government-verified address documents, a Permanent Account Number (PAN) or an Aadhaar number.
Zebpay Co-founder Saurabh Agrawal told Inc42 how any regulation that comes in would be good for consumers. He said, “Frankly speaking, we have no official confirmation from the government on what it is trying to do. So we will have to see what they come out with, what kind of regulations they are looking at. But of course, any regulation which comes in is good for the consumers in terms of trading and holding Bitcoins.”
He added that Indians generally are showing greater interest in cryptocurrency because of surging Bitcoin prices.