Cryptocurrency as ‘Property’

Recently, the Madras High Court has ruled that cryptocurrency qualifies as “property” under Indian law, an asset that can be owned, enjoyed, transferred, and held in trust.

What is Cryptocurrency ?

• Cryptocurrency is a digital medium of exchange that uses cryptography (encryption techniques) to verify transactions and algorithms to regulate supply.
• It operates on Blockchain technology, which is a decentralized digital ledger that records transactions across a peer-to-peer network without a central authority. 
• It is not issued or regulated by a central authority like a government or central bank.
• Eg: Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE) etc.

Legal & Regulatory Context in India

• Under Section 2(47A) of the Income Tax Act, 1961, cryptocurrency is classified as a “Virtual Digital Asset (VDA)”.
• Taxed under Section 115BBH (30% on income from transfer/sale).
• 1% TDS on transfers under Section 194S.
• Not recognized as legal tender in India (RBI stance).

Court’s Recognition of Cryptocurrency as Property

• Judicial Observation: The Court held that cryptocurrency is not tangible property nor currency but is property capable of being enjoyed and possessed beneficially and held in trust.
• Statutory Basis: The Court referred to Section 2(47A) of the Income Tax Act, 1961, which defines cryptocurrency as a virtual digital asset (VDA).
• Functional Nature: Cryptocurrencies can be stored, traded, and sold, thus possessing characteristics of property.
• Global Perspective: The judgment referenced positions in the UK, USA, Singapore, and New Zealand, where cryptocurrencies are recognised as property-like assets that can be possessed and transferred.
• Trust Principle: The Court observed that virtual digital assets held electronically are meant to be held in trust, establishing a fiduciary duty by exchanges toward users.

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Significance of the Judgement

• Legal Recognition: Cryptocurrency is now judicially recognised in India as a form of property, capable of ownership, transfer, and trust.
• Property Definition Expanded: Reinforces that property includes every species of valuable rights and interests having exchangeable value.
• Clarification under Tax Law: Confirms that crypto qualifies as a Virtual Digital Asset under the Income Tax Act.
• Investor Protection: Affirms that crypto assets held by users deserve the same legal protection as other property forms, strengthening confidence in digital asset holdings.
• Fiduciary Accountability: Sends a strong message to exchanges that they owe fiduciary duties to users whose assets they hold, even amid foreign legal proceedings.