Crypto Regulation in India (Complete Guide for 2024)

With the ever-growing popularity of digital assets, crypto regulation in India has become an acute topic discussed by the local authorities. 

Indeed, the Indian government has already made some steps towards regulating this high-tech industry. Yet, the legal status of digital assets along with crypto taxes and other regulatory questions may seem a total mess, especially for an outsider.

If you plan to invest in crypto while staying in India, this article may help you to get a better understanding of the legal landscape in this area.

Key Takeaways

• Definition of cryptocurrencies: The Income Tax Department in India classifies cryptocurrencies along with NFTs, tokens, and other digital means of storing value as Virtual Digital Assets.
• Crypto taxes: In India, there are three different types of crypto taxes. These include a standard 30% tax for any crypto profits, a 1% TDS on P2P trades, and an income tax that ranges depending on the yearly earnings.
• Strategies for reducing tax liabilities: there is no official way to avoid paying crypto taxes. You can only hold your crypto long-term instead of selling it or reduce TDS in the case of losses.

Is Crypto Regulated in India?

At the time of writing, crypto is not regulated in India. Digital assets are not considered legal tender here, but they are not under a total ban either.

Yet, as the usage of crypto only tends to grow among local citizens, authorities recognize the necessity to regulate this new technological area. 

Thus, in 2021, the Indian government introduced a Bill aiming to create a legislative framework and improve the regulation of crypto and blockchain. The initiative did not make cryptocurrency enthusiasts rejoice, as the bill prohibited private usage of cryptocurrencies. 

Next, in 2022, the Income Tax Department (ITD) gave an official definition of Virtual Digital Assets in Section 2(47A) of the Income Tax Act 1961. 

While covering all digital assets including cryptocurrencies, tokens, NFTs, etc., the document provided a legal framework for investors and blockchain companies giving them some hope. 

Finally, during the G20 summit in September 2023, the Indian government accepted the IMF-FSB joint recommendations for crypto regulations. The paper proposed a set of regulatory guidelines for the crypto market instead of an absolute ban.

As a result, favorable conditions for those who want to invest in crypto or run a blockchain startup in India still have a chance to appear.

Crypto Tax in India

According to the guidance issued by the Income Tax Department, cryptocurrencies are subject to taxation in India. The imposed taxes fall into three broad categories:

1. 30% tax

This tax applies to any profits derived from trading or investing in crypto. 

This flat rate is charged on any profits, regardless of whether they have been obtained via investment or business-related activities.

Examples of crypto transactions that are subject to this form of taxation include:

• Trading crypto for crypto
• Selling crypto for fiat (INR)
• Purchasing goods and services for crypto

2. 1% Tax at Source (TDS)

This is an additional tax that cryptocurrency users have to pay when transferring crypto assets between one another. To reduce the confusion, here are a few key aspects to understand:

• With crypto-to-crypto trades, the tax applies to both buyers and sellers.
• Crypto exchanges in India deduct this tax from all transactions and transfer the collected funds to the government.
• On P2P platforms, only the buyer is eligible to pay this tax.
• The 1% TDS comes into force starting July 1st, 2022.
• The penalty for failing to pay this tax equals the size of unpaid TDS.

3. Income tax

Finally, crypto regulation in India imposes an Income Tax on the following activities:

• Airdrops
• Crypto payments
• Staking
• Mining
• New coins obtained from hard forks
• Crypto gifts over RS 50,000

The size of this tax varies from 0% to 20% depending on the total sum you earn throughout a year.

How to Avoid Crypto Taxes in India?

With the size of the crypto taxes one has to pay in India, the temptation to avoid these duties is truly justified. The sad news is that there is no legal way to do that.

What’s more, failing to report your crypto profits may result in the following fines and charges:

• Reporting incorrect income. The fine for trying to cheat the Indian government in these questions varies from 50% to 200% of the tax underpaid. In the worst-case scenario, one may even get imprisoned for up to 7 years.
• Late filing of tax returns. In India, the 31st of July is the deadline to file your tax returns for the previous year. The penalty for missing the date is an interest charge of 1% per month on the size of the tax. Also, one may be charged an additional fee ranging from RS 1,00 to RS 5,000. Imprisonment is also a possibility in this case.
• Failing to report TDS. This crime incurs a late fee of RS 200 per day.

Avoiding taxes is impossible, but there is a way to reduce them.

First, you may hold your assets long-term. Unless you exchange them for other assets or cash them out for fiat, no tax will apply to your crypto. Yet, this is not always the best solution, especially for active traders. 

Alternatively, if you bear losses while investing in crypto, you may reduce the total tax payable by claiming TDS credits.

How To Calculate Crypto Taxes In India?

Let’s review a simple example to understand how crypto taxation in India works in practice.

Assume Alice has purchased RS 20,000 worth of BTC and sold it for RS 30,000 within the same fiscal year making a profit of RS 10,000.

Also, during the same period, she purchased RS 15,000 worth of ETH and sold it for RS 10,000 later bearing a loss of RS 5,000.

The tax she has to pay equals 30% of the profits she’s made, i.e. RS 3,000. Yet for the losses she bears, there will be no deduction.

Crypto Exchanges in India

Centralized exchanges offer the most convenient option for those wishing to buy or sell crypto in India. 

Some of the most popular platforms operating within the region include the following:

• WazirX
• CoinSwitch
• UnoCoin
• BitBNS

Binance, as well as Huobi, Kraken, and many other world-known platforms, are forbidden within the region. The Indian government banned URLs of their websites in December 2023 for non-compliance with the AML policies.

FAQ

Is it legal to invest in crypto in India?

In 2018, the Reserve Bank of India (RBI) issued a document prohibiting banks from dealing with digital assets. Yet, the Supreme Court of India canceled this ban in 2020 making it possible to invest in crypto legally.

Is Bitcoin taxable in India?

Yes, digital assets including cryptocurrencies such as Bitcoin, NFTs, and tokens are subject to taxation. The size of the tax depends on the type of crypto activities one performs to gain crypto profits.

Is Binance allowed in India?

No, it is not. Binance was banned by the Indian government in December 2023 together with many other popular crypto exchanges for violating AML policies.