Is Cryptocurrency Legal In India Now?

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What has happened?

Finance Minister Nirmala Sitharaman virtually gave legal sanction to cryptocurrencies in the country – by labelling them as “digital assets” and not currency and Taxing income gains from their transactions at a high 30%.

Her announcement in the Budget presentation largely ends the uncertainty over the future of cryptocurrencies in India.
It comes a day after Principal Economic Advisor Sanjeev Sanyal said the government would take a balanced view on crypto.

“There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.
Accordingly, for the taxation of virtual digital assets, I propose that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent,” the FM said.
She also announced that the Reserve Bank of India (RBI) will introduce its digital currency in 2022-23.
Indian investors have put around Rs 45,000 crore in private cryptocurrencies

The Finance Minister also said that the 30% tax on virtual assets cannot be mentioned as a replacement of any other income (meaning it cannot be claimed for deduction),
In addition to a 1% TDS that will be charged on payments made using digital assets in order to keep a track on transactions.

So far, the central bank pushed for a complete ban on investments in cryptocurrencies as it fears that these can harm the macroeconomic stability in the economy.
The Central Board of the RBI had recently discussed various aspects, including the status, of the central bank digital currency.
RBI officials informed the board that a pilot project for the introduction of CBDC will be launched soon.

CBDCs are the virtual or electronic form of fiat currencies (like the Indian rupee or US dollar).
A CBDC is the legal tender issued by a central bank in a digital form.
It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.
There are several models proposed by technology experts and evangelists on how the Digital Rupee could be transacted,
But a formal announcement by the Reserve Bank of India will likely detail how the Digital Rupee will be transacted by citizens.
One chief difference will be that a Digital Rupee transaction will be instantaneous as opposed to the current digital payment experience.

India’s booming crypto market was roiled at the end of last year when the Modi government proposed to introduce a bill in the Winter Session of Parliament which, among others, sought to prohibit all private cryptocurrencies in the country.
That bill was, however, not introduced with government sources suggesting that whenever a bill is brought, it would be referred to the parliamentary standing committee for wider deliberations with stakeholders.

According to Purushottam Anand, Founder of blockchain law firm Crypto Legal, Taxing income from cryptocurrencies does not necessarily and explicitly legalise cryptocurrencies because income tax is not concerned about the manner or means of acquiring the income.
An income earned from both – legal or illegal activities – can be taxed under Income Tax Act, he added.
“However, looking from a broader context, specific tax provisions for cryptocurrencies are a step towards legalisation.”
The government has not made crypto legal under the Finance Bill, but it made the gains from it as taxable.
“The right way to look at it is that the government has the right to tax unaccounted money, the same way it has the right to tax gains from crypto – be it legal or illegal,” said Harry Parikh, Associate partner, BDO India.
Further, it is also highly unlikely that the government will collect tax from cryptocurrency transactions and will then introduce a bill to make cryptocurrencies illegal, Anand said.

At the ‘Summit for Democracy’ organised by the US last year, Prime Minister Narendra Modi, too, had said that world leaders must jointly shape global norms for emerging technologies like social media and cryptocurrencies, so that they are used to empower democracy, not undermine it.
Also, recently at India-Central Asia submit PM Modi asked for common approach on cryptocurrencies.