Legal status of cryptocurrency in India

What's the legal status of cryptocurrency or Digital currency in India?

As of July 2021, Cryptocurrencies are not illegal in India. So if you want to buy, let's say Bitcoins, you can do so and start trading in it. However, India does not have a regulatory framework to govern cryptocurrencies as of now. The government had constituted an Inter-Ministerial Committee (IMC) on November 2, 2017, to study virtual currencies. The Group's report, along with a Draft Bill, flagged the positive aspect of distributed-ledger technology and suggested various applications, especially in financial services, for its use in India, including banks and other financial firms. 

However, the Centre had flagged reservations around its misuse and wanted to put a blanket ban in India. Latest reports say cryptocurrency may not face a complete ban in India. The Centre may soon set up a panel to regulate them. The decision was taken after several cryptocurrency exchanges urged the Centre to regulate virtual coins rather than banning them. Cryptocurrency , as a medium of payment, has neither been authorized nor been regulated by any central authority in India. Further, no set rules, regulations or guidelines have been laid down for resolving disputes that could arise while dealing with bitcoins. Hence, cryptocurrency transactions come with their own set of risks.

You should also know that the government in Jan 2021 had also said, it will introduce a bill to create a sovereign digital currency and simultaneously ban all private cryptocurrencies.

• “The bill seeks to prohibit all private cryptocurrencies in India. However, it would allow certain exceptions to promote the underlying technology of cryptocurrency and its uses,” the government says.

What’s the Road Ahead for cryptocurrency or digital currency in India ?

While the government has some reservations regarding cryptocurrencies, it is also working on its digital currency. The government does not want to be left behind in the new age tech revolution and aims to cash in on the benefits blockchain technology offers. "The time has come to leverage its applications while at the same time strengthening the digital infrastructure," Reserve Bank of India (RBI) Governor Shaktikanta Das had said in February 2021 while announcing that RBI is working on its digital currency. 

Is cryptocurrency taxable currently?

Yes. Cryptocurrency transactions are taxable in India in cases where the person earning such gains is an Indian tax resident or where the crypto is said to be domiciled in India. The income tax authorities may choose to tax the gains from bitcoins under the head “Income from other sources”. Further, if the income gets taxed under “Income from other sources”, the taxpayer would have to pay taxes at a rate as applicable to the tax slab he falls under. For eg, if his taxable income exceeds Rs 10 lakh, he would be liable to a tax @ 30% .

Cryptocurrency was once having implied ban in India.

The RBI, through a circular in April 2018, had advised all entities regulated by it not to deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling them. 

In 2018, the finance ministry had also issued a statement, saying "the government does not consider cryptocurrencies as legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or a part of the payment system the government will explore the use of blockchain technology proactively for assuring in the digital economy." 

In mid-2019, a government committee had suggested banning all private cryptocurrencies, with a jail term of up to 10 years as well as heavy penalties for anyone dealing in digital currencies. However, the Supreme Court in March 2020 overturned RBI's circular, permitting banks to handle cryptocurrency transactions from traders and exchanges.

Conclusion:

In India, despite government threats of a ban, transaction volumes are swelling and 8 million investors now hold 100 billion rupees ($1.4 billion) in crypto-investments, according to industry estimates. I feel Goverment would give six months lead time to liquidate cryptocurrency before banning them if it decides so. Please do pay your taxes on the cryptocurrency holdings or you may be vilified in the Goverment books .