Regulate Bitcoins through ITA 2000 notifications under Section 1(4) and 69/69A/69B

India has reportedly completed its diplomatic negotiations and formalities to ensure that Switzerland will automatically share the details of Bank accounts opened by Indian nationals in that country with Indian authorities so that numbered Swiss Bank accounts can no longer be used to park black money.

While  it has perhaps come a little too late in the day and its impact on curbing black money in India could be limited, this can be appreciated as a step in the right direction.

However, intelligent Black money operators have already found alternate means to park their Black money in the form of “Bitcoins” and other “Private Crypto Currency” (AltCoins) and hence are not much concerned with the Swiss Bank accounts now. The pressure is therefore now on the Government to some how legitimize Bitcoins as a “Digital Currency” so that it can be an easy instrument for parking black money.

Bitcoins and other Private Crypto Currencies will also be  a boon to terrorists in Kashmir, as well as Naxalites who need to receive funding from abroad for their nefarious activities in India and printing fake currency in Pakistan and tossing it over Malda-Bangladesh border or pushing it through Nepal is a cumbersome process. On the other hand, Crypto currency transaction is a great digital solution to the operation of transferring funds from ISI to terror networks in India.

Obviously, there are many in India who have great sympathy for the cause of breaking India and all those are interested in getting Bitcoins legitimized.

Though the Government of India formed a Committee under the Finance Ministry and sought the opinion of public formally through the website, the way the MCX and other quasi Government organizations tried to influence the decision in favour of recognition of Bitcoins, it was clear that there could be supporters of Bitcoins within the Government itself.

We can therefore expect that left to the Committee, no decision may come forth in near future and the current status of where “RBI is not prepared to declare Bitcoins as illegal” or “SEBI not being prepared to declare Bitcoin Exchange as illegal”, “ED acting deaf and dumb in not taking action against FEMA violations” will continue.

I therefore urge the Ministry of  Electronics and Information Technology (MeitY) under Mr Ravi Shankar Prasad to take suitable steps within their control to bring about suitable changes in the Information Technology Act to protect the country from the menace of Private Crypto Currencies.

Since ITA 2000/8 is already under a process of amendment, some amendments can be taken up when these amendments are considered. However, this would be a long drawn process and hence some action is required immediately in the form of a Notification which is within the hands of the Secretary of the department. It can be issued as a Gazette Notification and later presented to the Parliament for ratification in the next session.

The first step required to be done in this regard is

a) De-recognizing the Crypto Currency including Bitcon as a valid Electronic document under Section 4 of ITA 2000/8

b) Introducing criminal penalties for the use of Bitcoins and other Private Crypto currencies as a perceived currency or a legitimate commodity with value attached.

c) Introducing regulatory checks which act as deterrents to the spread of the Bitcoin and other Crypto currencies as part of  various legitimate  IT services

Some suggestions in this regard are as follows:

  1. Presently, First Schedule of ITA 2000/8 lists documents that are not within the purview of the Act. The documents listed here have no “Recognition” under Section 4 of ITA 2000/8. In this list Bill of Exchange and Promissory notes are already included as “Excluded Category” and are defined as “Negotiable Instruments other than the Cheque”.

“Currency” is not considered as a “Negotiable Instrument” and is regulated through RBI Act with an exclusive power to RBI to issue “Currency Notes”.

Crypto Currencies are “Electronic Documents” and hence are recognized under Section 4 of ITA 2000/8.

RBI does not however declare it as “Currency Note”. But in practical usage, it is promoted and used as if it is a currency like other currencies like the dollar or pound or euro. There are exchanges that convert these AltCoins to other fiat currencies some times through sophisticated money laundering schemes such as using Lindens (currency of the

There is therefore a misconception that these Crypto Currencies are “Virtual Currencies” and should be encouraged just like the PayTm or similar digital payment systems.

In order to remove the misconception and to prevent misuse and misrepresentation of Crypto Currency as a legitimate legal tender, Schedule I of ITA 2000/8 should be expanded with addition of the following instrument as excluded either with an explanation or amendment.

” Any Electronic Document that purports to constitute a negotiable instrument (other than the cheque) under the Negotiable Instruments Act 1881, or purports to be a “Currency” under the RBI Act 1934″

2. Section 66C of ITA 2000/8 makes fraudulent use of signature of a person as punishable.

The scope of the section may be extended by adding the words ” or  fraudulently and dishonestly makes use of any electronic document” within the section so that it applies both to the fraudulent use of a signature as well as any other electronic document. (This would also cover some crimes omitted when Section 66A was scrapped)

3. Section 69, 69A and 69B  of ITA 2000/8 provides powers to authorities to intercept, block or decrypt or seek information from any person. If the person is unable to provide assistance, he would be liable for punishment.

In the rules associated with these sections, it must be made clear that the authorities may demand decryption information of Bitcoins or other AltCoins and if the person is unable to provide the decrypted information, it should be considered as a punishable offence. (P.S: Encryption includes any form of hiding the information including the use of numbers for identifying the holders of bitcoins or wallets. Hence “Decryption Demand” means revealing the identity of the persons behind the transaction)

Notices under these sections can be issued to Bitcoin wallet companies and exchange companies to reveal the identity of transactions including the entire chain of transactions that constitutes the block chain.

Bitcoin holders may also be demanded to decrypt the Bitcoin information failing which they may attract penalty. Such property can be confiscated as property that is subject to investigation.

This would make Bitcoin and crypto currency  holding and trading as untenable and unless a separate positive regulation legitimizing such currencies is introduced, the current market of crypto currencies will vanish.

Since the above measures are well within the powers of the MeitY, it should be considered for immediate use even before the committee constituted for the purpose comes to an agreement on what kind of regulations can be considered.

It is the duty of every honest citizen of the country to ensure that the currency system of the country cannot be undermined by anonymous private crypto currencies like the Bitcoins.

I trust that MeitY will find suitable means to address the de-legitizimization of Bitcoins and Private Crypto currencies without any further delay.


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About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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4 Responses to Regulate Bitcoins through ITA 2000 notifications under Section 1(4) and 69/69A/69B

  1. rohit malik says:

    Dear sir,
    I need your expertise on this troublesome issue. No one in my locality is able to give a concrete direction.

    Due to this observing status of RBI regarding BITCOIN, is becoming a Headache to people like me.

    Few months ago my brother a NRI( USA) sent me some BITCOINS(-Worth 20 lakh TAXED MONEY) TO TRY THIS NEW TECH.And I sold them in INDIA.( can be considered an alternative to remit money to INDIA). As transactions need less paper work, time , transaction fees.

    But now some of my friends are saying that you will be charged against AML, FEMA, IT acts. IS THIS SCENARIO Possible.
    If Yes, how can I defend myself. What precautions do i need to take in future. Should we stop using Bitcoin.

    Any help will be appreciated.
    Why Not the Government Clear its stance.

    Thank you in advance,

    • You know the source of money …your family member… it is like a gift of a commodity… I suppose you have already sold and exchanged it for rupee.

      How have you sold it? …through an exchange?… in cash? or credit to Bank account?

      If you have sold it in one of the exchanges and it as money in Bank there should be no issue except for accounting the money as “Gift” or “Profit”.

      If you have sold it in cash, and you donot know the buyer, there could be a problem. You need to still declare it to the IT authorities and show it as gift received in kind from your brother sold for cash in India. It would be added to the other income and taxed.

      If you have still have it in cash, you need to remit it to a Bank with your PAN number. Then declare for tax purpose as above.

      IT dept will ask for the source of money and if you have some e-mail or letter from your brother, it would be better. Otherwise it may be treated as your own undeclared wealth and handle it as such.

      Please contact a chartered/tax consultant of repute on how to declare it.

      Since at least one end of the transaction can be substantiated by you and you are willing to pay taxes on the other end, and that this is one spcific transaction and not a continuing one, there should be no other problems such as AML.


  2. rohit malik says:

    Thank you for your TIME sir.

    Just a little follow up.
    I sold them on Indian exchange ZEBPAY and than the funds got directed to my bank account( with PAN card linked).
    When i decided to sell them on Zebpay, the price of BITCOINS appreciated+ the arbitrage that exist between Indian and international markets, resulted in a PROFIT. Will the final amount will be treated as GIFT OR the sent amount.

    As we are discussing, will you be willing to answer my next query.
    Aren’t these kinds of transactions damaging for INDIA as a whole( I am realizing this now). AS our Foreign exchange reserve didn’t increase. As no central bank is involved in this transaction. What should be the steps from the government side to regulate this.

    What if Indian people on a LARGE scale started using this channel as international payment. For example: if in the above mentioned case, I again initiate a payment to someone outside India via Bank( converting INR TO USD- Depleting our USD Reserve) and receive the payment from US side via Bitcoin channel( NO GAIN OF USD).

    What regulations India can follow to keep this in Check. As these can’t be regulated by current rules followed FEMA act( as per my knowledge)

    Will love to hear from you.
    Thank you again,

    • You can check the valuation of the Gift with a tax consultant. Probably the valuation on the day of receipt would be the value of the Gift at zero cost. The entire sale proceeds becomes profit (not the gain only). As regards the other adverse effect of Bitcoin, I am in agreement with your views and hence I have been trying to persuade the Government to end the speculation and ban Bitcoins without further delay.

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