Cryptocurrencies have long been regarded with suspicion in several nations, and India is no exception. As a result, the Reserve Bank of India (RBI) initially prohibited banks from dealing with any individual or company involved in cryptocurrency transactions.

However, the country's Supreme Court ultimately overruled the RBI's decision, prompting the Government to step in and regulate cryptocurrencies in India. Nevertheless, tax laws have been a significant point of contention for crypto users, as profits earned through cryptocurrencies are now subject to a relatively high tax rate of 30%.

Despite these obstacles, India has seen a surge in crypto users over the past two years. A recent study by Statista predicts that there will be a staggering 156 million crypto users in India by the end of 2023, representing half of the world's total crypto users.

The study predicts India will adopt cryptocurrencies faster than developed countries worldwide. It estimates India's cryptocurrency industry could generate nearly $6 billion in profits by 2027. The transformation of crypto laws in India has been fascinating. Let's take this journey ahead!

Timeline Of Crypto Laws in India

1. 2008: Introduction of Cryptocurrencies

A paper titled Bitcoin: A peer-to-peer (P2P) electronic cash system was published.

2. 2010: First Sale by Using Cryptocurrencies

After two years, moneycontrol.com reported that a man exchanged 10,000 bitcoins only for two pizzas. After this incident, other cryptocurrencies, like Litecoin, Namecoin, and many more, have started gaining popularity in India.

3. 2013: RBI Issued Cryptocurrency

People started to invest in cryptocurrencies, and transactions were done through sites like Zebpay, KoinX, and many more. The RBI issued a notice in the year 2013 to all crypto users. It warned investors concerning the risks associated with cryptocurrencies.

4. 2013-2017: Demonetisation and RBI Notice

There was an increase in digital payments after demonetisation in India, which ultimately boosted all crypto investments. The Indian banks were allowed to do crypto transactions. This forced the RBI to issue a notice about the apprehensions of crypto transactions. So, by the end of 2017, the RBI issued a warning that virtual currencies are illegal.

5. 2018: Prohibition of Digital Currencies

The Central Board of Digital Tax submitted a report to the Finance Ministry regarding prohibiting digital currencies and their transactions. Hence, in March 2018, RBI issued another notice after a month, which warned all banks, non-financial institutions, and payment services not to support cryptocurrency transactions.

6. November 2018: India Wants Crypto Campaign

WazirX Founder Nischal Shetty started an 'India Wants Crypto' campaign to impact cryptocurrency trading in India positively. The campaign received a positive response for the first time from Rajeev Chandrashekhar, a member of the Rajya Sabha. Later many celebrities like Jayanti Kanani, a Polygon co-founder, and many more joined this campaign. As a result, the hashtag was quite trending on Twitter during the February Budget session of 2018.

7. March 2020: Supreme Court Rejected Order

The Supreme Court rejected the RBI order regarding virtual currencies and declared the RBI notice unconstitutional. Thus, crypto exchanges were then back to life.

8. 2021: Government Decides to Regulate Cryptocurrencies

By the end of November 2021, the Government decided that cryptocurrencies should not be prohibited in India. Hence in December, Prime Minister Narendra Modi organised a cryptocurrency meeting with senior officers.

9. 2022: Tax Regulations

The laws related to cryptocurrency are still in discussion. But the tax regulations were passed in February 2022 by Union Finance Minister Nirmala Sitharaman.

She declared that digital currency will now be considered a currency, and the Government will charge 30% taxes on gains made from the digital currency. So, if you are a taxpayer and have purchased cryptocurrency as an investment, it will be considered a capital asset, and any profit on it is subjected to taxes.

Cryptocurrency Taxation in India

The 2022 Budget introduced a new section called 115BBH. According to this section, the taxable events include:

• Converting a VDA to the Indian rupee or any other fiat currency.
• Converting one digital currency to another (crypto to the crypto transaction)
• Paying your goods and services by using cryptocurrencies

The profits from any abovementioned transactions are subjected to a 30% tax. It applies to private investors, traders, and anyone who does crypto transactions from April 2022.

An example will help you understand the above laws. A person has invested Rs 2,00,000 in cryptocurrency at the beginning of the 2022 year and has sold it for 2,50,000. So, 30% is imposed on the profit of Rs.50,000. Therefore, the person has to pay 15,000 as tax.

The profit you will make from crypto is only taxable at the time of transactions. Therefore, it will not be taxable if you hold the profit and don't want to sell your crypto. Fortunately, the Government doesn't take any internet, platform, or broker fees at the time of a crypto transaction.

This concludes that the stance of the Indian Government is still unclear. The Indian legislature has neither legalised nor restrained the use of cryptocurrencies in India. Instead, the regimes encourage you to hold your crypto longer.

Additionally, all crypto transactions are subjected to 30% taxes. However, there are a few exceptions; if you gift crypto to family members, you will not have to pay taxes up to Rs. 50,000.

However, you have to give 1% TDS (Tax Deductible at Source) when buying and selling cryptocurrencies if the transaction exceeds Rs. 50,000 (this value might vary as per your income) in a year. TDS regulations are listed under section 194S of the Income tax act, and the law has been effective since July 2022.

What About Losses in Cryptocurrencies?

Even if you have losses in cryptocurrency trading, Section 115BBH suggests that it cannot be used to set off or reduce the taxes upon the profit gained through cryptocurrency or any other transactions conducted in a financial year.

For instance, a person who has bought Bitcoin for Rs 60,000 and sold it for Rs 80,000 in the same year. He also bought Ethereum for Rs 40,000 and sold it at Rs 30,000.

While in the first case, he has a gain of Rs 20,000, for which he needs to pay Rs 6000 as tax to the Government of India; in the second case, he has a loss of Rs 10,000. Although the person doesn't have to pay capital gain taxes here, TDS will still be imposed. Therefore, the loss incurred in the second transaction cannot be used to reduce the taxable amount.

Impact Of Taxation on Traders and Retail Investors

The Government imposed 1% TDS on buying and selling crypto, making high-frequency trading difficult.

This has further impacted the volume of crypto exchanges. That's why businesses make calculative decisions by considering the tax they need to give up on profits during the transaction. They cannot even offset their taxable gain if they have a loss while selling cryptocurrency in the same year.

It would be an obvious decision for the crypto traders and retail investors to hold the crypto assets longer to pay less taxes.

Impact Of Crypto Taxation on Crypto Business

Most blockchain consultants aren't in favour of the taxable laws of the Indian Government and are considering moving out of the country to access more crypto-friendly nations like Singapore.

These instances could attract a new tax law by the Indian Government targeting the blockchain consultants having business ties with India despite living abroad.

Most cryptocurrency experts believe India's crypto tax laws are regressive. The CEO of Binance recently suggested that strict crypto tax laws might affect the industry forever.

Conclusion

India's cryptocurrency industry has witnessed a significant transformation in recent years, with the country's embrace of digital currencies outpacing that of many developed nations. While tax laws have posed a challenge for crypto users, the growth of fintech, cashless transactions, and smartphone usage in India has fuelled an increase in crypto adoption. As a result, India is poised to become a significant figure in the global cryptocurrency market, with enormous potential for profit in the coming years.

At TaxNodes, we strive to provide our readers with the latest and most insightful information on cryptocurrency and blockchain technology topics. With our finger on the pulse of the crypto industry, we are determined to bring you the most exciting and informative content available. So, keep returning for more, and stay ahead of the curve in this ever-evolving and dynamic field.

byRhea Tripathy

Meet Rhea Tripathy, a word wizard with a pen in one hand and a paintbrush in the other. By day, she slays as a content writer and by night, she indulges in her artistic passion. With a keen eye for the markets and a knack for literature, this certified trader brings her sharp mind and creative flair to everything she does. When she's not crafting clever content, you'll find her analyzing the latest market trends or getting lost in a good book.

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