A cryptocurrency is a medium of exchange that uses cryptography to manage the creation of new units as well as secure the transactions by converting legible information into an almost uncrackable code, to track purchases and transfers.

With an estimated 11 unregulated digital exchanges (and growing) cryptocurrencies have been gaining inroads into Indian purses rapidly. Cryptocurrencies still remain in the unregulated space with the lawmakers still to get a handle on whether they are a currency or an asset. As a currency, the income earned by an individual through sale and purchase or exchange of cryptocurrencies would be in ordinary interpretation considered as “income from other sources” for the purpose of computation of total income. Further, if such income accrues through regular or frequent transactions involving cryptocurrencies it would then fall under the head of “income from business and profession”. However, as an asset, the road leads to classifying them as an intangible asset since cryptocurrencies are essentially a string of data created by the computation of block chains in the system using an appropriate software. This digitized structure and substance of the cryptocurrencies makes it a stronger case for its characterization as an intangible asset.

Clarity on legal recognition of cryptocurrencies is also important to iron out regulation of their conveyance, gifting, inclusion in wills and payment of stamp duty or other taxes etc.

An Inter-Disciplinary Committee on cryptocurrencies comprising nine members including representatives of RBI, SBI, NITI Aayog and Department of Financial Services set up by the government in April 2017 is yet to publish its report. The RBI has till date issued three warnings in December 2013, February 2017 and December 5, 2017 providing information to users, holders and traders of Virtual Currencies (Cryptocurrencies) regarding the potential economic, financial, operational, legal, customer protection and security related risks associated with in in absence of regulations stating, “No regulatory approvals, registration or authorization is stated to have been obtained by the entities concerned for carrying on such activities”. The tax authorities are also believed to be scrutinizing transactions by investors to check the tax implications.

Cryptocurrencies are unique because they are a proof of concept of a decentralized non-issued electronic currency and as evidence suggests, Cryptocurrencies are likely to play an increasing role in payments systems worldwide. It therefore appears to be a perfect opportunity for the Government to recognize Cryptocurrencies for the promotion of a Digital India which can help in decentralization of economic power, greater financial access and ultimately, break down socio-economic barriers.

Infact, notwithstanding the warnings by RBI, the government committed itself to explore use of blockchain technology proactively for ushering in digital economy Union Budget 2018-19. The speech of the Finance Minister Arun Jaitley very strategically termed the issue of cryptocurrencies as not being considered as a legal tender and stressed on the agenda to prevent use of crypto-assets in financing illegitimate activities, far from declaring them illegal in India. The way forward therefore clearly is towards putting in place an enabling regime for Cryptocurrencies in India to realize the Digital India dream