India’s general attitude towards cryptocurrency has been negative. In 2017, the central Reserve Bank of India (RBI) considered a now-defunct proposal to introduce its own cryptocurrency, Lakshmi.  It has also been looking into encouraging blockchain technology in financial and payment institutions. But the government has shunned cryptocurrency with policymakers opting to outlaw cryptocurrency with incarceration and legal petitions. Bitcoin is not recognized as legal tender and, as of 23 July 2019, the Banning of Cryptocurrency and Regulation of Official Digital Currency Bill has been proposed. Unocoin, an India-based exchange, allowed individuals to trade Bitcoins but is now disabled. However, Bitcoin is still traded in India through digital currency exchanges like ZebPay, CoinDelta and CoinSecure. Many bitcoin traders usually buy through diaspora networks in countries where it is legal tender. 

Is Bitcoin Legal in India? 

Bitcoin is not legal in India. In 2018,  India’s central bank, the Reserve Bank of India (RBI) announced a ban on the sale or purchase of cryptocurrency for entities regulated by RBI. The RBI ban has also discouraged the overall cryptocurrency market in India, since crypto assets have been accused of financing illegitimate activities. In  July 2019, The “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019” draft has proposed a 10-year prison sentence for anyone who “mines, generates, holds, sells, transfers, disposes, issues or deals in cryptocurrencies.”

How to Buy and Sell Bitcoin in India 

The downward trend in cryptocurrency trading in India is mostly due to increased government regulations. However, this does not stop people from trading. Two ways in which many Indians trade are: 1) Exchanges and 2) P2P methods. Both these steps follow the KYC norms and usually require documents like Pan card, Aadhaar card or passports. 

Top Bitcoin Exchanges in India

Since banking institutions have banned cryptocurrency trading in India, popular exchanges like ZebPay have had to shut down. Nevertheless, the following top exchanges are still currently used in India:

Unocoin

Unocoin was founded in 2013 and is the leading bitcoin exchange in India. It is backed by investment from the USA and is a regulated company offering low 1% fees which fall to 0.7% with increased trading volumes. It is a relatively easy exchange platform, allowing users to buy cryptocurrency with any Indian bank account. However, with the banning proposal at hand, things might get challenging for Unocoin.

WazirX

One of India’s most trusted exchange platforms, WazirX was founded in 2018. It focuses on exchange-escrowed P2P services to enable customers to continue to withdraw INR. WazirX follows the KYC norms, has a mobile application for both Android and iOS users and also claims to provide multiple hundred transactions per second.

Other methods

Outside of exchanges, P2P trading platforms enable bitcoin purchases in India, in spite of the bank bans. Two important P2P marketplaces in India are:

Paxful is a peer to peer marketplace founded in 2015 that allows buyers and sellers to meet online and trade directly Bitcoin with each other. Sellers on Paxful accept over 300 payment methods, including the major Indian payment methods like PayTM, Bheem, Phonepe. As a result, many Indians use Paxful due to ease of access and payment. There is also no fee for ht site itself, since the Bitcoin is traded at a premium. 

LocalBitcoins supports the most popular payment methods and allows individuals from different countries to purchase Bitcoin for their local currency. LocalBitcoins currently operates in several major Indian cities like Mumbai, Hyderabad, Kolkata, Delhi, Ahmedabad, Chandigarh, Pune, Guwahati and many more.

Again, due to the 2019 Supreme Court Proposal, many exchanges and marketplaces are wary of the Indian government’s attitude towards cryptocurrency in general. As of September 2019, there are no Bitcoin ATMs in India. 

India’s Tax Rules on Bitcoin Profits

For the individual investor, gains from Bitcoin have to be declared as profit or capital gains in year-wise statements. As such the tax rates are subject to the holding period of the asset. For short term gains, the amount is added to the individual’s income tax bracket. For instance, someone who earns over Rs 10 lakh ($14,614), they will be taxed at 30%. For long term gains, this individual will be taxed at 20%. Once an indexation benefit is applied and inflation is adjusted, the tax rate can go down further. 

For a trader, bitcoin profits are treated as income from a business. As such, certain expenses related to business, office maintenance, such as buying a computer, internet expenses, office rent, administration cost, etc.,can be deducted. However, if the turnover crosses Rs. 2 crore ($279,400) mark, a tax audit is required. 

For those who mine cryptocurrency, profits will not be treated as a capital asset. As such, there is no capital gains tax. However, if it is sold then the Bitcoin will be taxed and considered as “income from other sources.”

Where to Spend Bitcoin in India 

Most Indians trade and mine bitcoin to store them in digital web wallets instead of spending them to buy something. Regardless several ventures have been in place to use Bitcoin for spending. Unocoin has been the most prominent in this sector. In 2017, it linked up with BookMyShow, an online cinema ticketing platform. This venture allowed customers to top up their accounts for movie tickets with Bitcoin. Unocoin also launched a ‘merchant gateway’ which enables business entities to accept bitcoins. Sellers like Sapna Book House, bus ticket booking portal eTravelSmart and Dharwad International School take payments from customers through the Unocoin gateway.

A more unique Bitcoin experience, Suryawanshi restaurants in Bengaluru’s Indiranagar and Whitefield neighbourhoods accept bitcoin as a mode of payment, alongside the usual cash, cards, and Paytm. Due to a strong diaspora tradition, many Indians also use bitcoin on multinational sellers like Dell and Steam but get their shipments through relatives/shipping companies abroad.

History of Bitcoin in India

In a bid to fight corruption and terrorism, on November 8, 2016, Prime Minister of India Narendra Modi shocked the nation by demonetizing Rs. 500 and Rs. 1000 currency notes – sparking a new interest in the digital currency and other cashless mechanisms such as internet banking, digital wallets, credit cards etc.

The demonetized notes amounted to 86% of India’s cash in circulation. India is a country where 87% of transactions are done in cash. Chaos was inevitable.

This resulted in long queues at the ATMs and banks for weeks. There was not enough cash with the banks to dispense. People holding cash could deposit their money in the bank accounts or exchange for new Rs. 500 and Rs. 2000 notes before 30 December.

People who were hoarding “black money” (unaccounted cash) could not deposit money into their accounts because banks were keeping a close eye on suspicious deposits.

What options do these people have? Let go all of their money? Well some of them did exactly that. Old notes were found floating in the river.

While others turned to look for commodities to hedge the risk of an economic slowdown; some bought gold, some bought silver.

What did government do to curb this? They started raiding gold jewellers. When gold wasn’t working, people were buying silver which significantly increased the demand of silver.

With gold and silver being targeted by authorities, these souls saw Bitcoin as a safe haven. Using their connections and by paying up to 30-35% premium they started buying Bitcoins with cash.

Bitcoin price started to surge and weekly volume of bitcoin trading nearly doubled.

Not to forget, India is one of the largest remittance markets with a total value of more than $70 billion. On this a user usually pays up to 15% in bank charges and conversion fees. This is where Bitcoin’s true potential lies.

To understand how Bitcoin may progress in India it will be beneficial to know the role gold plays in Indian society. An American couple’s most valuable asset is typically their home, income and education. An Indian couple’s possession of gold touches on all these areas.

It is fair to compare Bitcoin to gold, as they both are liquid commodities. Bitcoin as a result can be seen in the middle of fiat currency and gold – only lacking the cultural weight that gold has.