Cryptocurrencies as a payment medium in India are not regulated by any central authority. There are no rules and regulations or any guidelines laid down for settling disputes while dealing with cryptocurrency. So, trading in cryptocurrency is done at investors’ risk.

The Finance Minister of India, Nirmala Sitharaman, proposed to tax digital assets and has increased the debate on the legality of cryptocurrencies in the country. While many have embraced the decision to tax virtual currency as it is the first step to recognizing it, the government is yet to pass any official clarification on this matter of whether currencies like Bitcoin are legal or not in India.are not regulated by any central authority. There are no rules and regulations or any guidelines laid down for settling disputes while dealing with cryptocurrency. So, trading in cryptocurrency is done at investors’ risk.

The Finance Minister of India, Nirmala Sitharaman, proposed to tax digital assets and has increased the debate on the legality of cryptocurrencies in the country. While many have embraced the decision to tax virtual currency as it is the first step to recognizing it, the government is yet to pass any official clarification on this matter of whether currencies like Bitcoin are legal or not in India.

Based on the various key statements made by the Reserve Bank Of India Governor as well as various government spokespersons including the Finance Minister of the country, one can conclude that cryptocurrency is illegal, but there is no certain ban on it in India. They are unregulated but according to the recent Union Budget 2022, the government of India announced a 30% tax on gains from cryptocurrencies and a 1% tax deducted at source. 

Cryptocurrency Tax In India: What We Know So Far

Tax on cryptocurrency is one of the most confusing aspects in India. Initially, there was no Income Tax Act or Goods and Services Tax (GST) defined cryptocurrencies in India. In the recent Union Budget 2022 outcome, the Finance Minister presented a tax regime for virtual or digital assets that include cryptocurrencies.

  • Cryptocurrency investors are required to report the calculated profits and losses as a part of their income.

  • A 30% tax will be charged on the earnings from the transfer of digital assets that include cryptocurrencies, NFTs, etc.

  • Just the cost of acquisition and no deduction will be permitted while reporting earnings from the transfer of virtual assets.

  • A 1% deduction of tax deducted at source (TDS) on the buyer’s payment if it crosses the threshold limit.

  • If cryptocurrency is received as a gift or transferred it is subjected to tax at the giftee’s end. 

  • If you face any loss from the virtual asset investment, it cannot be balanced against other income.

Cryptocurrency Bill: The Road Ahead

The Cryptocurrency Bill 2021, is a legislative initiative that was introduced in the Lok Sabha by the government to regulate the thriving market of cryptocurrency in India. The industry has seen a rush in investment in the last few years, especially during the covid period not just domestically but also internationally. 

Crypto trading platforms like WazirX, CoinDCX, Zebpay, etc. in India are witnessing a big leap in volumes. An unregulated crypto market is unfavorable and risky even when the government wants to protect young entrepreneurs and investors. By introducing the Cryptocurrency Bill in 2021, the government officially took a step toward regulating cryptocurrency. The bill seeks to create a favorable structure for the creation of the official digital currency that will be issued by the Reserve Bank Of India (RBI). It also prohibits all other private cryptocurrencies but, with certain exceptions to boost the underlying technology of cryptocurrency. In the Union Budget of 2022, the government already took the step of imposing a 30% tax and 1% TDS on gains from virtual digital assets or cryptocurrencies. 

Bottom Line

The Cryptocurrency Bill 2021, is still in process and might even take a while to be open for consultation. The Government of India already took a step when they introduced taxation on virtual assets in the Union Budget 2022. However, the introduction of the Cryptocurrency Bill is an important milestone.