- Cryptocurrency in India may attract tax liability.
- The Indian government is planning to compartmentalize virtual currencies.
- The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 has been tabled by the government in the parliament.
Cryptocurrency is surging in popularity in India as an investment and, increasingly, a means of payment by companies for their products and services. This brings in the question of how to pay taxes on those types of transactions.
While the Reserve Bank of India (RBI) has not granted legal tender status to bitcoin and other cryptocurrencies, there is no escape from paying tax on cryptocurrency investment gains. According to the Economic Times, the Indian government is planning to compartmentalize virtual currencies and their tax treatment on the basis of their use cases—payments, investment, or utility.
Another report by Business Standard mentions that the government is planning to introduce 1 percent GST on crypto exchanges, to be collected at source. The exchanges will likely collect this from the investors using the platform. The decision, as and when it comes, will be the first official regulation on cryptocurrencies in India.
Cryptocurrency in India
As per data from blockchain analytics firm Chainalysis, Indian investments in the cryptocurrency have surged to US$6.6 billion in 2021, driven by a shift in the thinking of young investors – moving away from gold and other precious metals. Another reason is the security and transparency provided by this technology. As per a report, over 10 million crypto investors were added by India in 2021.
The legality of Crypto trading in India
In 2018, the Reserve Bank of India (RBI) banned the use of cryptocurrency as legal tender in India by issuing a circular. However, this decision was overturned by the Indian Supreme Court in March 2020, permitting banks to handle cryptocurrency transactions from traders and exchanges.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 has been tabled by the government in the parliament and will most probably be taken up for discussion in the monsoon session.
The report further mentions that the cryptocurrency exchanges will possibly be classified into three categories – facilitators, brokerages, and trading platforms. While brokerages help connect buyers and sellers, trading platforms, which are mostly electronic, provide software for placing trades and monitoring the markets.
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