Image Source : FREEPIK Cryptocurrency and Indian currency. (REPRESENTATIONAL PICTURE)
Following Donald Trump’s victory in the US presidential elections, the value of cryptocurrencies, including Bitcoin, has skyrocketed. Bitcoin recently crossed the USD 100,000 mark, drawing renewed interest from investors worldwide. If you’re considering investing in cryptocurrencies in India, it’s crucial to understand the tax implications.
Heavy 30 per cent Tax on Gains
In India, cryptocurrencies aren’t formally identified as legal tender under the Income Tax Act’s Section 2(47A), which classifies them as Virtual Digital Assets (VDAs). However, transactions and investments in cryptocurrencies are not prohibited. Taxation of VDAs is governed by way of Sections 115BBH and 194S of the Income Tax Act.
These provisions mandate:
A flat 30 per cent tax on profits earned from promoting VDAs.
A 1 per cent Tax Deducted at Source (TDS) on all transactions involving VDAs.
This method of any income generated via cryptocurrency investments is subject to a 30% tax charge.
Are cryptocurrencies legal in India?
Cryptocurrencies are digital or virtual currencies secured by means of cryptography, making counterfeiting or double-spending almost impossible. They function on decentralised networks the use of blockchain generation.
Despite the imposition of taxes, cryptocurrencies are neither formally legal nor explicitly illegal in India. The government introduced a 30 per cent tax on crypto earnings in 2022; however, this taxation does not equate to formal popularity.
Future policy framework in progress
Currently, an inter-ministerial group (IMG) comprising officials from the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and the Finance Ministry is working on a complete policy for cryptocurrencies. The IMG has yet to release a consultation paper to gather stakeholder input on India’s regulatory stance toward digital currencies.
While the government is deliberating on a policy, investors are advised to adhere to existing tax regulations while trading or investing in cryptocurrencies.
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