"Bitcoin Trade Methodology Through Hawala System": Supreme Court on Cryptocurrency Dealings in India
In a recent hearing, the Supreme Court of India remarkedly compared Bitcoin trading to a refined version of Hawala business, expressing concern over the lack of regulatory clarity from the government. This comparison was made during the proceeding of a bail application for an individual who was arrested for alleged illegal Bitcoin trade.
Justices Surya Kant and N Kotiswar Singh, who presided over the case, revealed that the Supreme Court had previously asked the Centre to elucidate its policy on virtual currency regulation, two years ago. Regrettably, the Centre has, as of yet, not responded.
Mukul Rohatgi, the counsel representing the alleged Bitcoin trader, argued that trading in Bitcoin is not illegal in India, citing the Supreme Court's earlier ruling quashing the Reserve Bank of India's circular on the matter. Justice Kant responded by stating that although he might not fully comprehend Bitcoin, the court has consistently urged the government to introduce a regulatory framework to prevent any issues.
Justice Kant further explained, "While I might not understand much about Bitcoin, all I can say is that there are some legitimate Bitcoins and some counterfeit ones out there. Essentially, trading in Bitcoin in India feels like dealing with a refined kind of Hawala business, where regulations are absent." Rohatgi added that Bitcoin holds immense value and one Bitcoin could potentially be exchanged for a luxury car in a foreign country.
On Saturday, the value of one Bitcoin reportedly stood at approximately 82 lakh rupees. The Additional Solicitor General Aishwarya Bhati, representing the Gujarat government and the Enforcement Directorate, stated their intention to file a comprehensive counter-argument to the bail application, as the matter is not confined only to Bitcoin trade.
The top court has granted 10 days to the state and the Enforcement Directorate to submit their response, with the case set to be heard again on May 19.
The alleged trader, Shailesh Babulal Bhatt, has been in custody since his arrest on August 14, 2021. He is contesting the February 25 order of the Gujarat High Court, which denied him bail in this case.
Since 2022, the Indian government has imposed a 30% tax on income from digital asset trading, along with a 1% tax deducted at source (TDS) for transactions exceeding ₹10,000. Losses from cryptocurrency trading cannot be offset against gains, creating a relatively strict tax regime. These measures have led to consolidation in the crypto exchange market, with smaller exchanges anticipating closure or mergers due to financial pressures from tax policies.
To improve transparency and ensure compliance with Know Your Customer (KYC) norms and tax regulations, the Financial Intelligence Unit of India (FIU-IND) mandated all crypto exchanges to update user KYC details by June 30, 2025. The objective of this mandate is to prevent money laundering and promote proper tax compliance among traders, with non-compliance potentially leading to regulatory action.
In sum, while Bitcoin trading may not be explicitly illegal in India, it consists of a highly regulated market, primarily through taxation and compliance frameworks. The Indian government's stance maintains cryptocurrencies as digital assets instead of legal tender, adopting a cautious yet firm regulatory approach with a focus on preventing financial crimes and ensuring tax compliance[1][3][5].
[1] https://www.thehforsyth.com/india-update-increased-regulation-coming-for-crypto-exchanges/[2] https://www.india.com/business/indian-government-imposes-30-tax-on-cryptocurrency-trading-1729339/[3] https://www.livemint.com/news/india/bitcoin-trading-to-be-transparent-as-fiuid-ind-mandates-kyc-updates-by-june-30-11650586478951.html[4] https://www.bloombergquint.com/onweb/the-end-of-small-exchanges-in-india-as-crypto-tax-pressure-mounts#:~:text=Smaller%20crypto%20exchanges%20in%20India,compliance%20burden%20caused%20by%20these%20tax%20policies.[5] https://www.financialexpress.com/industry/cryptocurrency-news/hc-we-cannot-put-blind-faith-in-crypto-trading-centre-tells-sc-on-trading-in-digital-currency/2069124/
Bitcoin trading in India is highly regulated, primarily through taxation and compliance frameworks, and can be compared to a refined version of a traditional Hawala business due to the lack of regulatory clarity. The business aspect of trading, as it pertains to finance, is subject to these regulations and the associated financial pressures.
