INDIA Law and Practice Contributed by: Vijayendra Pratap Singh, Asif Ahmed, Bhanu Jindal and Jitesh Lakra, AZB & Partners
Information Act, 2005 where information held by them qualifies as public information. 7.3 Crypto-Assets India presently has no dedicated legislation govern - ing crypto-assets. Although the government of India introduced the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 to prohibit private crypto-assets and create a framework for a digital cur - rency issued by the Reserve Bank of India (RBI), this has not materialised into substantive legislation. The government of India has stated that any regulation on crypto-assets will be finalised only after international consultation. The Finance Act, 2022 (the “Finance Act”) recognised, for the first time, taxation of certain virtual digital assets (VDAs) as a basis for recognising the income gener - ated from such VDAs. While this does not expressly legitimise VDAs, it taxes income from VDAs at 30% and every transaction involving such VDAs at 1% tax deducted at source. Notably, the Finance Act introduced a new clause (47A) in Section 2 of the Income Tax Act defining a VDA as “any information, code, number or token (not being Indian currency or any foreign currency), gener - ated through cryptographic means or otherwise, by whatever name called, providing a digital represen - tation of value which is exchanged with or without consideration, with the promise or representation of having inherent value, or [which] functions as a store of value or a unit of account and [this] includes its use in any financial transaction or investment but [is] not limited to investment schemes, and [which] can be transferred, stored or traded electronically”. Non- fungible tokens and any other token of a similar nature are included in this definition. The Finance Act recognised that the introduction of any cryptocurrency can only happen as a result of the Central Bank, namely the Reserve Bank of India (RBI), which alone has the power to issue a Central Bank digital currency as defined under the Finance Act. In light of this, cryptocurrencies are not presently recognised as legal tender under Indian law.
The RBI has repeatedly cautioned parties from dealing with cryptocurrencies, and through a circular dated 6 April 2018 has asked banks and entities regulated by the RBI to not allow use of the banking system for trade in crypto-assets. However, in Internet and Mobile Association of India v RBI , the Supreme Court of India struck down this circular, allowing banks to serve entities/persons dealing in crypto-assets. Nev - ertheless, through its circular dated 31 May 2021, the RBI has also advised its regulated entities to continue to carry out customer due-diligence processes for transactions in VDAs, in line with regulations govern - ing standards for know-your-customer, anti-money laundering, and the combating of financing of terror - ism obligations under the PMLA. In March 2023, the government of India formally brought “cryptocurrency” and VDAs under the regu - latory ambit of the PMLA. It is now mandatory for any person dealing with cryptocurrencies and/or virtual digital assets to comply with reporting requirements. There are increasing incidents of law enforcement authorities freezing crypto-assets where they are sus - pected of being involved in the commission of crime. This nuanced area is becoming a topic of debate, as by their very nature “asset tracing” of crypto-assets presents a challenge. “Blockchain” technology does not allow complete asset-tracing, and, as recognised by the Supreme Court of India, every crypto-asset differs in nature, whether it is anonymous or pseu - do-anonymous, and in light of the potential impact of attachment or confiscation of such property (given that a public ledger does not allow change of owner - ship in a traditional way).
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