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Can Gov. Employees Invest in Crypto?

Government employees have to face a lot of restrictions about anything which falls outside their line of employment.
We are discussing here whether a government employee can invest or trade or both in cryptocurrencies.

Government employees are guided by the respective rules of their particular service falling under the Central Civil Services (Conduct) Rules, 1964.  They are the same for any government employee be it the Central or any State Government.

Is a government employee allowed to invest in crypto assets?

The Rule- 16 of the CCS CCA (Conduct Rules) rule states that

Investment, lending and borrowing

No Government servant shall speculate in any stock, share or other investment: Provided that nothing in this sub-rule shall apply to occasional investments made through stockbrokers or other persons duly authorized and licensed or who have obtained a certificate of registration under the relevant law.

Explanation – Frequent purchase or sale or both, of shares, securities or other investments shall be deemed to be speculation within the meaning of this sub-rule.

So, when you have the intention of booking short term profits, it is speculation.

If someone invests a sum of money with the hope of cashing out after the investment reaches a certain value, but the value is reached a lot earlier than expected, would that be considered as an investment or speculation?

Crypto currently falls in a grey area and the presence of regulatory authority is the need of the hour. All the major crypto exchanges follow the KYC criteria for all their customers who invest through them. All the transactions are channelled through the banking system, and in view of that, until the government does not come with crypto regulations, these crypto exchanges are the preferred and safest mode to invest.

As stated in the law mentioned above, occasional investments are allowed with persons duly authorized and licensed by the regulatory authorities.

So, a government employee can invest in cryptocurrencies with these crypto exchanges.

Further, vide notification dated 31.05.2021 Reserve Bank of India clarified that RBI earlier circular DBR.No.BP.BC.104/08.13.102/2017-18 dated April 06, 2018, which prohibited dealing in crypto in any form was set aside (declared invalid) by the Hon’ble Supreme Court on March 04, 2020, in the matter of Writ Petition (Civil) No.528 of 2018 (Internet and Mobile Association of India v. Reserve Bank of India).

Therefore, it has been clarified by RBI that banks, as well as other entities, may continue to carry out customer due diligence processes in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA), 2002 in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.

But futures and options trading is not allowed to be carried out, because any income or loss that arises from the trading of futures or options is to be treated and considered as business income or business loss as defined in the Section 43(5) of The Income- Tax Act, 1995.

And business is not allowed to be carried out by a government employee, so any activity earning business income is prohibited.                                                                                                                                                

Can a government employee delegate a family member to maintain the investments/portfolio?

Let’s read the law first.

As per Section- 16 (2) (i)

No Government servant shall make, or permit any member of his family or any person acting on his behalf to make, any investment which is likely to embarrass or influence him in the discharge of his official duties. For this purpose, any purchase of shares out of the quotas reserved for Directors of Companies or their friends and associates shall be deemed to be an investment which is likely to embarrass the Government servant.

However, If the government employee/investor can explain and prove that the investment is in no way affecting the government employee/investor from discharging his duties, s/he is allowed to invest by himself/herself or through family members.

Conflict of interest would bar the government employee/investor from investing in crypto as it would bar him/her from investing in any other situation where there is a conflict of interest.

Can a government employee invest in crypto assets during work hours?

The law says that investment activity should not affect the job responsibilities of any government employee.

A minor violation by a government employee does not attract any major or minor penalty immediately, as warning has to be given to the employee before any action is taken against them as stipulated under the Central Civil Services Rules.

If there is a breach of law, a written warning is given to the individual.

The Disciplinary authority, if of the view that the government employee/investor has done something beyond the rules, has to give a written warning to the person before taking any final decision. Any arbitrary order made by the Disciplinary Authority can be a subject matter of challenge before the Appellate Authority.

So, it is recommended to invest in crypto assets after office hours.

As per the act, if any of the rules or sub-rules are violated, the government’s decision shall be final. Can the government’s decision be challenged in the court of law?

In case there are any violations of the rules and sub-rules, the employee can seek the remedy of filing an appropriate appeal before the competent authority. The rules dealing with the appeal are stipulated in their respective service rules regulating the services.

Are there any government employees exempted from these provisions? 

The employees may belong to Central, State, All India Services among others. Each of them will be governed by their respective rules governing their employment. There is no immunity to anyone who does any act against the law, however, the adjudication procedure might differ for different employees at different positions.

In simple words, no government employee is exempted from these rules. 

How much amount can a government employee invest?

There is no limit on investment.

Disclosure of investments

It is advisable for all government employees to must disclose their crypto-currencies holdings in compliance with the Office Memorandum dated 07.02.2019. The employee/ investor needs to take care of the prevailing laws and notifications by the RBI and Government.

As per the Memorandum, employees need to send an intimation if total transactions of movable property, in this case, crypto investments, exceeds six months’ basic pay of a Government servant during the calendar year. The intimation must be sent by 31st January every year.

A significant contribution to this article was made by: 

Mr. Aditya Giri,

Advocate at Supreme Court of India and an expert in handling cases related to Constitution, Service, Employment-related matters, and Crypto Advisory.

Disclaimer – Readers are advised to consult a lawyer to discuss their specific cases. The information in the article is for general information purposes only.

News recommendation: Income Tax on Cryptocurrencies in India

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