Bitcoin at $89,000: What does the law say about cryptocurrencies in India?

Income from cryptocurrency transactions is taxed at a flat rate of 30% in India, with an additional 1% Tax Deducted at Source (TDS) on transactions exceeding Rs 50,000 annually

After a long period of dormancy, cryptocurrency markets are showing renewed momentum following Donald Trump’s return to the US presidency. Bitcoin neared the $90,000 mark on Monday night, just a day after surpassing $80,000.

 

On November 11, the leading cryptocurrency hit an unprecedented high of $89,623, and many investors anticipate it could set new records, potentially reaching $100,000 by year-end.

 

Investors in the crypto space are optimistic due to President-elect Trump’s signals of fostering a more crypto-friendly regulatory environment—a sector that has historically faced unclear regulatory frameworks.

 

What are India’s crypto trading regulations? 

India’s cryptocurrency regulations are complex and evolving. While cryptocurrencies are legal to trade and hold, they are not recognised as legal tender. This means people can buy and sell digital assets like Bitcoin and Ethereum, but cannot use them for everyday transactions.

 

The Reserve Bank of India (RBI), the Ministry of Finance, and the Securities and Exchange Board of India (Sebi) are the primary bodies overseeing crypto activities. In 2018, the RBI imposed a ban on banking support for crypto transactions, but this was overturned by the Supreme Court in March 2020, restoring banking services for crypto exchanges.

 

How is cryptocurrency taxed in India? 

Under the Union Budget 2022, income from cryptocurrency transactions is taxed at a flat rate of 30 per cent, along with a 1 per cent TDS on transactions exceeding Rs 50,000 annually.

 

Cryptocurrencies are classified as “Virtual Digital Assets” (VDAs) under Section 2(47A) of the Income Tax Act, covering most crypto assets except gift cards or vouchers.

 

Since March 2023, crypto assets have also been brought under the Prevention of Money Laundering Act (PMLA), requiring exchanges and crypto service providers to comply with anti-money laundering standards, including Know Your Customer (KYC) requirements. Enforcement is overseen by the Financial Intelligence Unit India.

 

India’s proposed cryptocurrency regulation Bill 

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 aims to regulate the industry by banning private cryptocurrencies while setting the stage for an RBI-issued central bank digital currency (CBDC). The passage of the bill has been delayed, leaving several regulatory aspects unresolved.

 

Key proposals include restricting private digital currencies to mitigate risks like money laundering and fraud. The bill also proposes establishing a CBDC to modernise payments and enhance financial inclusion. The proposed Digital Currency Board of India (DCBI) would oversee compliance with crypto-related regulations.

 

Following the wholesale pilot, the retail version (e-Rupee) was introduced on December 1, 2022. This pilot operates within a closed user group, including select customers and merchants across five cities: Mumbai, New Delhi, Bengaluru, Bhubaneswar, and Chandigarh. The e-Rupee functions as a digital token representing legal tender issued in denominations equivalent to physical currency.

 

However, the delay in passing the Bill has caused confusion among crypto-enthusiasts.

 

What’s fuelling the crypto rally after the US presidential election? 

Although Bitcoin is often classified as a “safe asset” in Washington, avoiding securities regulations, many crypto projects and startups operate in a precarious regulatory grey area.

 

Trump’s campaign included promises to position the United States as a global digital asset hub and to develop a national Bitcoin reserve.

 

While details of this pledge remain vague, it has ignited speculative interest, boosting crypto mining and trading stocks.

 

The rally has also extended to other parts of the crypto market, lifting smaller tokens like Ether and Dogecoin, the latter originally created as a joke currency.

 

Crypto investors are hopeful that Trump’s intention to replace Gary Gensler, Chair of the US Securities and Exchange Commission (SEC), will lead to a more relaxed regulatory environment. Trump also launched a new crypto venture, World Liberty Financial, in September.

 

While the outlook appears positive, analysts warn that the crypto market remains highly volatile, with several altcoins facing significant regulatory challenges. Nonetheless, a supportive stance from the US could create a favourable climate for Bitcoin, Ethereum, and other altcoins as regulations develop.

 

This shift could sustain a bullish trend for one to two years, potentially lasting throughout Trump’s term.

 

Although the rally has generated optimism, experts caution that the crypto market is susceptible to sharp downturns as well as gains.