Union Budget 2018: Cryptocurrencies dealt a death blow; no longer legal tender

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Published: February 2, 2018 11:47:21 AM

Budget 2018: The Union Budget 2018 presented by the Finance Minister in Parliament, has been a landmark Budget. The said Budget has looked at various kinds of allocation in different sectors. Of particular importance is the fact that Budget 2018 has recognized the significance of digital economy.

Budget 2018: Finance Minister Arun Jaitley presented Union Budget on February 1Budget 2018: As per information available in the public domain, lakhs of Indian tax payers were sent notices from the Income Tax department to explain their bitcoin or crypto currency transactions. (Reuters)

Budget 2018: The Union Budget 2018 presented by the Finance Minister in Parliament, has been a landmark Budget. The said Budget has looked at various kinds of allocation in different sectors. Of particular importance is the fact that Budget 2018 has recognized the significance of digital economy.

The Hon’ble Finance Minister has stated that the global economy is transforming into a digital economy, thanks to the development of cutting-edge technologies in digital space, being Machine Learning, Artificial Intelligence, Internet of Things, 3-D printing, quantum communications and the like. In the Budget speech, the Minister has stated that the Government of India will explore the use of blockchain technology proactively for ushering in the digital economy.

These are good notes of music that comes to one’s ear. The Budget 2018 speech recognizes that the distributed ledger system or the blockchain technology allows organization of any chain of records or transactions without the need of intermediaries. Hence, the focus of the Government on use of blockchain technology proactively for ushering in the digital economy comes as a welcome news.

However, in para 112 of the Budget speech, the Finance Minister stated as under :

“The Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system.”

This particular statement sounds as a death knell for the emerging Crypto-currency economy in India. Thanks to the said statement, it is now the stated policy of the Government of India that crypto-currencies are not legal tender or coin in India . Hence, all Indians who have been investing in crypto-currencies need to take note that all their investments are not within the ambit of legality.

Read also: Budget 2018: India’s cyber sovereignty constantly on attack, cyber security not dealt with specifically, urgent need for allocation of funds

In fact, this is the first crystal clear clarification given by the Government to the extent that Crypto-currencies lack legal sanctity and sanction in India. However, the next part of the statement gives an indication of an aggressive strategy ahead. As per the statements of the Finance Minister, the Government will take all measures in their power and possession for two distinct objectives:-

  1. To eliminate use of Crypto assets in financing illegitimate activities; or
  2. To eliminate use of these Crypto assets as a part of the payment system.

Watch: Union Budget 2018: Cryptocurrency Is Not Legal Tender, Says FM Jaitley

This comes in as a jarring news for lakhs of Indians who have bonafide invested in crypto currencies. The net result of this announcement is that cryptocurrency exchanges will be deemed to be illegal. Infact, the portents of the things to come were visible even prior to the Union Budget. As per information available in the public domain, lakhs of Indian tax payers were sent notices from the Income Tax department to explain their bitcoin or crypto currency transactions. This came in the wake of a nationwide survey by the Income Tax Department, which reportedly showed that more than $3.5 billion worth of transactions have been conducted over a 17-month period.

Income tax Calculator: Calculate impact of Arun Jaitley’s Budget 2018 on your tax liability

Seen from a governance perspective, it would appear that the Government of India has taken the stand not to grant legality to crypto currencies, given the uncertainty of legalities concerning crypto currencies and the connected policy and regulatory issues associated therewith. Further, a large number of crypto-currencies do not have a central authority backing the same, with the result that the said crypto-currencies are amenable to far more manipulations and speculation in their pricing. The Government, hence, has chosen to not consider crypto-currencies legal tender or coin. This kind of announcement coming from India appears to be a step in the tangential direction.

World over, crypto currencies are increasingly being recognized as the present and the future. It is not only about bitcoins. Numerous other crypto-currencies have come up which are now an integral part of the digital economy. By declaring crypto currencies as illegal tender, India has chosen to adopt a conservative approach.

Watch: Brief History Of Budget: 10 Interesting Facts You Shouldn’t Miss

It is very important for a nation to insist that illegal use of crypto assets for financing illegitimate activities shall not be allowed. However, to completely close your eyes to crypto currencies effectively is not a good approach. India needs to learn from its mistakes in the past that it need not adopt an ostrich approach. The Government must be open to coming up with and exploring new mechanisms on how to best deal with positive uses of crypto-currencies, while ensuring that the negative/criminal uses of crypto-currencies are minimized, to the maximum extent possible.

All in all, the Union Budget 2018 has signaled a new Indian policy on crypto currencies.

Read also: Budget 2018: Cryptocurrency is not a legal tender, but government will keep exploring blockchain technology, says Arun Jaitley

As per medium.com, Cryptocurrencies have reached a record $185 billion in market value after the bitcoin surge, with the inevitable $200 billion mark right around the corner. Hopefully, in the coming times with the changed scenarios, India may want to revisit its policy on crypto-currencies which are likely to become important fueling factors for the further growth of the digital economy.

The author Pavan Duggal, Advocate, Supreme Court of India, is an internationally acclaimed authority and expert on Cyberlaw and Cyber Security Law and has been acknowledged as one of the top four cyber lawyers in the world. He is also Chairman of the International Commission on Cyber Security Law and President of Cyberlaws.Net and can be reached at pavan@pavanduggal.com, pduggal@vsnl.com.

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