Loading page, please wait…
What is Legal Status of Cryptocurrency in India? - UPSC Economy
What is What is Legal Status of Cryptocurrency in India? in UPSC Economy?
What is Legal Status of Cryptocurrency in India? is a key topic under Economy for UPSC Civil Services Examination. Key points include: Cryptocurrency in India is unregulated but not banned; it is not legal tender.. Profits from Virtual Digital Assets (VDAs) are taxed at 30% since Union Budget 2022-23.. India has launched its own Central Bank Digital Currency (CBDC), the 'e-RUPI', which is legal tender.. Understanding this topic is essential for both UPSC Prelims and Mains preparation.
Why is What is Legal Status of Cryptocurrency in India? important for UPSC exam?
What is Legal Status of Cryptocurrency in India? is a Medium-level topic in UPSC Economy. It is tested in both Prelims (factual MCQs) and Mains (analytical answer writing). Previous year UPSC questions have frequently covered aspects of What is Legal Status of Cryptocurrency in India?, making it essential for comprehensive IAS preparation.
How to prepare What is Legal Status of Cryptocurrency in India? for UPSC?
To prepare What is Legal Status of Cryptocurrency in India? for UPSC: (1) Study the comprehensive notes covering all key concepts on Vaidra. (2) Practice previous year questions on this topic. (3) Connect it with current affairs using daily updates. (4) Revise using key takeaways and mind maps available for Economy. (5) Write practice answers linking What is Legal Status of Cryptocurrency in India? to related GS Paper topics.
Key takeaways of What is Legal Status of Cryptocurrency in India? for UPSC
- Cryptocurrency in India is unregulated but not banned; it is not legal tender.
- Profits from Virtual Digital Assets (VDAs) are taxed at 30% since Union Budget 2022-23.
- India has launched its own Central Bank Digital Currency (CBDC), the 'e-RUPI', which is legal tender.
- CBDCs are state-backed and regulated, unlike decentralised private cryptocurrencies.
- The government's approach balances innovation with financial stability and combating illicit uses.
What is Legal Status of Cryptocurrency in India?
Medium⏱️ 8 min read
economy
📖 Introduction
Current Regulatory Stance on Cryptocurrency in India
In India, cryptocurrencies are currently unregulated. However, it is crucial to note that they are not specifically banned by law.
The Government of India does not officially recognise cryptocurrencies as legal tender. This means they cannot be used as a standard medium of exchange for goods and services or for settling debts.
Legal Tender: A medium of payment recognised by law to be valid for meeting a financial obligation. In India, the Indian Rupee is the legal tender.
The government intends to address the use of cryptocurrencies in facilitating illegal activities, treating them as a payment method for such purposes.
Taxation of Virtual Digital Assets (VDA)
Despite the unregulated status, the Government of India introduced a significant taxation framework for virtual digital assets (VDA), which includes cryptocurrencies, in the Union Budget 2022-23.
Union Budget 2022-23: Announced that the transfer of any virtual currency/cryptocurrency asset will be subject to a 30% tax deduction.
This taxation implies a form of indirect recognition for transaction purposes, even though they lack legal tender status.
UPSC Insight: The introduction of taxation without explicit regulation highlights the government's cautious approach – aiming to generate revenue and track transactions while deliberating a comprehensive regulatory framework.
Introduction of Central Bank Digital Currency (CBDC) - e-RUPI
India has launched its own Central Bank Digital Currency (CBDC), known as the Digital Rupee or ‘e-RUPI’. This initiative is a collaborative effort by key financial and health authorities.
Key Collaborators for e-RUPI:
- National Payments Corporation of India (NPCI)
- Department of Financial Services (DFS)
- National Health Authority (NHA)
- Ministry of Health and Family Welfare (MoHFW)
- Partner banks
The e-RUPI is a digital form of the paper currency, designed to be transacted using wallets backed by blockchain technology.
Distinction between CBDC and Cryptocurrencies
While the concept of CBDCs was inspired by innovations like Bitcoin, there are fundamental differences between them and decentralised virtual currencies or crypto assets.
Key Differences:
- CBDCs are legal tenders, issued and backed by a central bank (like RBI in India).
- Cryptocurrencies (e.g., Bitcoin, Ethereum) operate in a regulatory vacuum and are not issued by the state.
- CBDCs are a digital form of fiat currency, enjoying sovereign backing.
- Cryptocurrencies lack the ‘legal tender’ status and are decentralised.
This distinction is critical for understanding India's approach, which seeks to leverage digital currency benefits while maintaining monetary control and stability.
💡 Key Takeaways
- •Cryptocurrency in India is unregulated but not banned; it is not legal tender.
- •Profits from Virtual Digital Assets (VDAs) are taxed at 30% since Union Budget 2022-23.
- •India has launched its own Central Bank Digital Currency (CBDC), the 'e-RUPI', which is legal tender.
- •CBDCs are state-backed and regulated, unlike decentralised private cryptocurrencies.
- •The government's approach balances innovation with financial stability and combating illicit uses.
🧠 Memory Techniques
95% Verified Content
📚 Reference Sources
•Union Budget 2022-23 documents
•Reserve Bank of India (RBI) publications on Central Bank Digital Currency (CBDC)
•Supreme Court of India rulings on cryptocurrency (2020)