Cryptocurrency businesses in India are navigating a rapidly evolving legal and regulatory landscape. These businesses face a unique set of legal, regulatory, and financial challenges due to the dynamic nature of the digital asset ecosystem. Below, we outline the primary legal challenges our clients in the cryptocurrency sector face:
1. Regulatory Uncertainty
- Lack of Clear Legislative Framework
Currently, cryptocurrencies are not regulated under specific legislation in India. While the Supreme Court struck down the Reserve Bank of India (RBI) ban on cryptocurrency exchanges in 2020 (in the case of Internet and Mobile Association of India vs. Reserve Bank of India), there remains no formal regulatory framework for cryptocurrencies. This lack of clear legislation creates operational uncertainty for businesses involved in cryptocurrency investment, trading, and management. - Potential Cryptocurrency Legislation (2021)
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, under consideration by the government, could regulate or potentially ban cryptocurrencies. This impending regulation further complicates the operating environment for crypto businesses, as it creates ambiguity over the legal status of cryptocurrencies in India.
2. Taxation and Compliance Issues
- Income Tax Act, 1961
Under the Income Tax Act of 1961, there is no clear classification for cryptocurrencies. However, the Central Board of Direct Taxes (CBDT) treats gains from cryptocurrency transactions as taxable income either under capital gains tax or business income, depending on the nature of the transaction. Businesses dealing in crypto assets must comply with tax reporting requirements, including disclosures of profits made from cryptocurrency trading. - Goods and Services Tax (GST) Implications
The GST Act currently does not explicitly address the taxation of cryptocurrencies, leaving businesses uncertain about the applicability of GST on crypto transactions. The ambiguity arises from whether cryptocurrencies should be treated as goods, currency, or securities for GST purposes. - Tax Evasion Risks
Under-reporting or improper tax reporting of cryptocurrency transactions may expose businesses to penalties under the Income Tax Act, as well as potential charges for tax fraud under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
3. Anti-Money Laundering (AML) & Know Your Customer (KYC) Compliance
- Prevention of Money Laundering Act (PMLA), 2002
Cryptocurrency businesses are subject to stringent AML and KYC regulations to prevent the use of digital currencies for illicit activities, such as money laundering and terrorism financing. Failing to comply with these regulations can result in regulatory scrutiny, hefty fines, and loss of operational licenses. - FATF Guidelines
The Financial Action Task Force (FATF) has developed international standards for AML and CFT (Countering the Financing of Terrorism) compliance, which India follows. Cryptocurrency businesses are expected to implement robust systems for transaction monitoring, customer identity verification, and suspicious activity reporting to ensure compliance with these global standards.
4. White-Collar Crime Risks
Cryptocurrency businesses are particularly vulnerable to various white-collar crimes due to the relatively unregulated nature of digital assets and the potential for financial manipulation. These include:
- Fraud & Misrepresentation
Cryptocurrency businesses face the risk of allegations of fraud under the BHARATIYA NYAYA SANHITA (BNS) OF 2024 (Sections 415-420) for cheating and misrepresentation. Businesses that engage in fraudulent schemes like Ponzi schemes or provide misleading information to investors about the security or viability of their digital assets could be charged with criminal offences. - Money Laundering
Using cryptocurrencies to conceal illicit funds can result in violations of the Prevention of Money Laundering Act (PMLA), 2002. If a business is found complicit in facilitating money laundering, it could face investigations, penalties, and criminal prosecution. - Market Manipulation
Pump-and-dump schemes, insider trading, or other manipulative practices in cryptocurrency markets can lead to regulatory and criminal scrutiny under the Securities Contracts (Regulation) Act, 1956 or The Prevention of Fraudulent and Unfair Trade Practices (PFUTP) Regulations. - Tax Evasion
Non-disclosure or underreporting of cryptocurrency-related earnings could lead to tax evasion charges under the Income Tax Act, 1961 and expose businesses to penalties or criminal prosecution.
How Duke & Baron Can Assist Cryptocurrency Businesses in Navigating Legal & Regulatory Challenges
1. Legal & Regulatory Guidance
- Navigating the Evolving Regulatory Framework
As the regulatory landscape for cryptocurrency remains uncertain, Duke & Baron provides strategic advice on the legal implications of upcoming regulations, such as the Cryptocurrency Bill, 2021. Our firm stays updated on government actions and judicial decisions, offering tailored advice that helps clients navigate legal ambiguity and adapt to changes. - Tax Compliance & Strategy
Our tax experts can provide in-depth guidance on the classification and taxation of cryptocurrency under the Income Tax Act, 1961 and the GST Act. We can help businesses structure their operations to minimize tax liabilities while ensuring full compliance with applicable laws. - AML & KYC Compliance
We assist cryptocurrency businesses in building robust AML and KYC compliance frameworks, ensuring that clients meet both domestic and international requirements, such as Financial Action Task Force (FATF) guidelines. Our firm helps develop customer verification systems, transaction monitoring processes, and suspicious transaction reporting mechanisms, safeguarding businesses from regulatory penalties.
2. Company Secretarial Services
- Corporate Governance & Statutory Compliance
Duke & Baron offers comprehensive company secretarial services, ensuring that cryptocurrency businesses comply with corporate governance norms under the Companies Act, 2013. We manage corporate filings with the Registrar of Companies (ROC), maintain statutory records, and ensure compliance with board resolutions, shareholder meetings, and annual reporting requirements. - Regulatory Filings
We handle filings with the Securities and Exchange Board of India (SEBI) and other relevant authorities, ensuring that all legal requirements are met, including annual filings, reports, and compliance audits.
3. Representation in Criminal Defense & White-Collar Crime Trials
- Criminal Defense in Investigations & Trials
In the event of criminal investigations under the BHARATIYA NYAYA SANHITA (BNS) OF 2024 or PMLA, 2002, our firm provides expert criminal defence for businesses accused of market manipulation, fraud, or tax evasion. We represent clients in both trial courts and investigations, ensuring that they receive fair treatment under the law. - Defending Allegations of Fraud & Tax Evasion
Duke & Baron specializes in defending clients accused of fraud or tax evasion under the Income Tax Act, 1961. We represent businesses in tax audits, assessments, and appeals before Income Tax Appellate Tribunals (ITAT).
4. Commercial Litigation & Arbitration
- Representation in Commercial Suits
We represent cryptocurrency businesses in commercial litigation arising from disputes with investors, partners, or customers. Our firm handles contract disputes, intellectual property issues, and breaches of shareholder agreements before commercial courts under the Commercial Courts Act, 2015. - Arbitration & Dispute Resolution
For businesses involved in cross-border cryptocurrency transactions, we offer arbitration services in line with the Arbitration and Conciliation Act, 1996. We help clients resolve disputes efficiently through arbitration or mediation, ensuring time-sensitive solutions.
5. Regulatory Investigations & Court Representation
- Regulatory Scrutiny & Investigations
Our experts assist clients during regulatory investigations by authorities like SEBI, RBI, and the Income Tax Department. We manage all aspects of the investigation, ensuring compliance with applicable regulations and mitigating the risk of financial penalties or criminal charges. - Court Representation
In case of legal disputes, our advocates represent cryptocurrency businesses in civil courts, tribunals, and appeals, defending their rights in regulatory matters and protecting their interests in litigation processes.
Here at Duke & Baron, we offer comprehensive legal services to cryptocurrency businesses in India, addressing a wide range of legal, regulatory, and compliance challenges. With expertise in corporate governance, taxation, AML/KYC compliance, and criminal defence, our firm ensures that clients in the cryptocurrency sector are well-equipped to navigate complex legal issues, mitigate risks, and achieve compliance with evolving laws and regulations. Whether advising on regulatory frameworks, defending clients in criminal investigations, or handling commercial litigation, Duke & Baron provides tailored solutions to protect and support cryptocurrency businesses in India.
