Discover the incredible advantages of cryptocurrency in the Indian economy! Explore the blog to learn how digital currencies revolutionise transactions, foster financial inclusion, promote transparency and empower individuals. Uncover the potential for economic growth, security and innovation brought about by cryptocurrencies in India.

What are the Benefits of Cryptocurrency in the Indian Economy

The use of cryptocurrencies has swept the globe, and India is no exception. The Indian government recently demonstrated a willingness to accept cryptocurrencies and investigate their potential economic benefits despite early scepticism. 

Additionally, there are a lot of possible advantages. For example, cryptocurrency can increase financial inclusion, promote entrepreneurship and innovation, lower transaction costs, boost transparency, and act as a buffer against unstable economic conditions.

With cryptocurrencies, new investment opportunities and a new government tax revenue source are possible. Cryptocurrencies have risks and difficulties but cannot discount their potential advantages. In this essay, we'll examine the benefits of cryptocurrencies in India and how they can change the financial system in that nation.

Benefits of Cryptocurrency in the Indian Economy

Cryptocurrency has emerged as a new and innovative way of transacting value in the digital age. While there are still concerns and uncertainties around cryptocurrencies, their potential benefits for the Indian economy are manifold and far-reaching. Here are the primary benefits:

In India, cryptocurrency can potentially increase financial inclusion, particularly for underbanked or unbanked individuals. Without the requirement for a conventional bank account, people can access financial services using cryptocurrency. This service may help close the wealth gap and integrate more individuals into the financial system.

Cryptocurrency is transparent and decentralised, meaning a single entity does not govern it and that all transactions are visible on a public ledger. This transparency aids in lowering corruption and boosting confidence in the financial system.

Cryptocurrencies can provide a buffer against inflation and other forms of economic instability. Due to this, people and businesses may experience a degree of financial stability that is impossible with conventional financial systems.

Another critical benefit of cryptocurrencies is their ability to facilitate cross-border transactions and reduce costs associated with traditional payment methods. For example, cross-border payments can often be slow, expensive, and subject to high fees and exchange rates. 

Cryptocurrencies can enable instant, inexpensive cross-border transactions by doing away with intermediaries and drastically lowering transaction costs.

People may get access to new financial opportunities through cryptocurrency that was previously closed off. In addition, cryptocurrencies have led to a boom in innovation and entrepreneurship within the fintech sector. This opportunity can stimulate the nation's economic development and creativity.

Finally, a thriving cryptocurrency economy can provide a new source of revenue for the Indian government. If cryptocurrencies are more widely acknowledged, a new stream of tax revenue for the government may be created. In addition, the government may raise more money by taxing Bitcoin transactions while regulating the sector and lowering the likelihood of fraud and other illegal activity.

Cryptocurrencies can bring fresh cash flows and investments to the Indian economy. This cash flow can encourage economic expansion and present chances for startups and small businesses to raise capital.

The Indian economy is also faced with some difficulties and hazards due to cryptocurrencies. For instance, controlling and overseeing transactions may be challenging because they are decentralised. Furthermore, the absence of a central authority can make settling disagreements or transaction-related problems difficult.

Despite the difficulties and dangers, it is impossible to dismiss the potential advantages of cryptocurrencies. As the global economy shifts towards a more digital one, cryptocurrencies will become increasingly crucial to the future of finance. Therefore, India needs to create a legal framework that fosters the growth of the cryptocurrency business while balancing innovation and risk management.

The Indian economy gains a lot from using cryptocurrencies, including greater financial inclusion, quicker and less expensive transactions, new investment opportunities, transparency, innovation, financial stability and tax income. 

However, regulatory frameworks must be created to ensure that cryptocurrencies are risk-free, secure and open to all users. Furthermore, these advantages must be evaluated against the associated risks and difficulties.

Discover the fascinating world of pegged value crypto assets in our latest blog. Learn how these innovative digital currencies maintain a stable value, explore their use cases, and understand the mechanisms behind their pegging. Unveil the potential benefits and risks associated with these assets and stay up-to-date with the latest developments in the ever-evolving crypto market. Dive into the realm of pegged value crypto assets and broaden your understanding of this intriguing facet of cryptocurrency.

What are Pegged Value Crypto Assets?

Cryptocurrency and volatility are synonymous with each other; therefore, the volatile nature of such virtual digital assets has always been a significant concern for investors worldwide. The unpredictable fluctuations in value have hindered the widespread adoption and usage of digital currencies for everyday transactions. To address this issue, the concept of pegged value crypto assets has gained significant traction in recent times. In this article, we will delve into the intricacies of pegging as it relates to virtual digital assets.

Before we delve into the concept of pegged value crypto assets, it's essential to understand the concept of pegging in a financial context. In traditional finance, pegging refers to the act of linking the value of a currency or an asset to the value of another currency or asset. This is done to establish a fixed rate of exchange. Pegging has been used throughout history by nations to overcome problems of unpredictability in determining the value of their currencies. The practice promotes trade and foreign investment by providing stability to the state's national currency.

With respect to crypto, pegging refers to linking the value of a cryptocurrency to the value of a specific fiat currency, commodity, or other tradable asset. This is achieved through encryption-secured digital mediums of exchange, commonly known as pegged-value crypto assets. The value of these assets fluctuates in the same direction and to the same degree as the currency or asset to which they are pegged. The most common pegged value crypto assets are linked to the US dollar (USD), mirroring the trend in traditional economics.

Pegging crypto assets involves establishing an exchange rate between the cryptocurrency and the fiat currency or asset it is pegged to. This exchange rate is typically set at a 1:1 ratio, but variations can exist depending on the project. To maintain the peg, project owners need to hold a sufficient amount of reserves in the pegged currency or asset. This ensures that the cryptocurrency can be redeemed for the pegged value at any given time. The reserves can consist of cash, cash-equivalent assets, or a combination of both. The challenge lies in holding a significant amount of reserves while ensuring the stability and value of the cryptocurrency.

Numerous pegged-value crypto assets have emerged in recent years, each with its own unique approach and underlying pegging mechanism. Let's explore some prominent examples in the crypto market:

Tether (USDT) is one of the most well-known and widely used pegged-value crypto assets. It is pegged to the US dollar, with a 1:1 ratio maintained between the two currencies. Tether is designed to provide stability and serve as a reliable medium of exchange in the crypto ecosystem. The project aims to keep the exchange rate as close as possible to 1 US dollar at all times. Tether is available on various blockchains, including Ethereum, Algorand, Tron, and more.

Digix Gold (DGX) is a unique pegged value crypto asset that is pegged to gold. Each DGX token represents a specific amount of gold, with one token equaling one gram of gold. This approach combines the stability and intrinsic value of gold with the benefits of blockchain technology. The physical gold backing the DGX tokens is securely stored in a vault in Singapore, providing transparency and assurance to token holders.

Petro is an interesting example of a state-owned pegged cryptocurrency. Introduced by the Venezuelan government, Petro was intended to be backed by the country's oil reserves. Each Petro was pegged to one barrel of oil, providing a tangible asset as the underlying value. While Petro faced significant controversies and challenges, it paved the way for exploring government-backed cryptocurrencies and the potential use of tangible assets as pegs.

In addition to fiat currency and commodities, cryptocurrencies can be pegged to securities. Companies like Polymath and Gibraltar offer platforms for tokenising securities, enabling the creation of security-backed stablecoins. These stablecoins represent ownership of securities and provide investors with a regulated and transparent way to trade and invest in traditional financial assets.

Pegged value crypto assets offer a compelling solution to the volatility concerns associated with regular cryptocurrencies. By linking the value of a cryptocurrency to a stable fiat currency, commodity, or asset, pegged assets provide stability, usability, and protection against market fluctuations. However, these assets also come with their own set of challenges, including reliance on centralised entities, counterparty risk, and regulatory hurdles. As the crypto ecosystem continues to evolve, it will be interesting to see how pegged-value crypto assets shape the future of digital finance.

Discover the ever-evolving landscape of crypto taxation in India with our comprehensive blog. Explore the past, present, and future scenarios, as we unravel the complexities and implications for crypto investors and traders. Stay informed and gain valuable insights into the state of crypto taxation in India.

The State Of Crypto Taxation In India - Past, Present & Future

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!

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.

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.

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.

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.

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.

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.

Discover answers to your burning questions about virtual currency transactions in our comprehensive FAQ blog. Learn about the ins and outs of crypto transactions, wallet security, tax implications, and much more. Gain clarity on the fascinating world of virtual currencies and make informed decisions with confidence.

Frequently Asked Questions on Virtual Currency Transactions

Virtual currency transactions have gained significant attention in the realm of finance and technology. As digital currencies continue to evolve and reshape traditional financial systems, it is crucial for individuals and businesses to understand the legal and financial implications associated with these transactions. In this comprehensive article, we aim to address the frequently asked questions surrounding virtual currency transactions, shedding light on the key aspects that individuals and businesses need to be aware of.

From the basics of virtual currencies to the regulatory landscape governing their use, this article will provide clarity on topics such as taxation as well as their legal status. Whether you are a cryptocurrency investor, a business exploring virtual currency payments, or simply curious about the intricacies of this emerging form of finance, this article will serve as a valuable resource to address your queries. By exploring the frequently asked questions surrounding virtual currency transactions, we aim to equip you with the knowledge and understanding necessary to navigate this evolving landscape confidently. Let's delve into the world of virtual currencies and unravel the complexities associated with their transactions.

What is virtual currency or cryptocurrency?

In the realm of digital transactions, virtual currency emerges as a cryptographic-based digital currency, ensuring the reliability and security of transactions. At the heart of this digital currency concept lies the revolutionary blockchain technology, acting as a decentralised ledger that meticulously records all transactions. Presently, a myriad of virtual currencies circulates within the market, with notable examples being Ethereum, Bitcoin, and Solana. The essence of these virtual currencies lies in their decentralised nature, purposefully designed to operate independently without the influence of a central authority. This decentralised architecture guarantees a transparent and tamper-resistant ecosystem where no single entity controls the entire virtual currency system.

Under the provisions of the Income Tax Act, the scope of Virtual Digital Assets encompasses cryptocurrencies and non-fungible tokens (NFTs). It is crucial to understand that engaging in cryptocurrency transactions is not unlawful. The authorities have displayed an increasing awareness of the possibilities presented by blockchain technology and cryptocurrencies, which prompted the introduction of tax regulations specific to virtual currencies in the Union Budget of 2022.

What is the taxation implication on virtual currency transactions in India?

Within the domain of virtual currency transactions, a consistent income tax rate of 30% applies to retail investors, traders, and individuals involved in the transfer of crypto assets during a specific financial year, regardless of whether the gains are short-term or long-term. Any profits arising from the transfer of virtual assets are subjected to this 30% tax rate. Notably, the nature of income, be it investment or business income, and the holding period of the assets do not influence the uniform application of this crypto tax rate.

Is there any TDS liability on virtual currency transactions?

Yes, according to the provisions outlined in the Income Tax Act of 1961, a 1% Tax Deducted at Source (TDS) applies to all crypto asset sell transactions. This regulation came into force on July 1, 2022. Notably, the TDS is deducted from the final sale amount rather than solely from the profits obtained. Whether your trade yields profits or losses, the TDS obligation remains unchanged.

Can losses from crypto be set off or carried forward to the next financial year?

No, per Section 115BBH of the Income Tax Act, losses arising from one cryptocurrency cannot be offset against gains from another cryptocurrency or any other source of income. Additionally, the Act does not allow for the carry forward of crypto losses to future financial years.

Yes, Non-Fungible Tokens, categorised as Virtual Digital Assets, are subject to taxation. Therefore, if you have acquired an NFT and realised any gains from it, those gains will be taxable at a flat rate of 30%.

Acquiring a comprehensive understanding of the fundamental aspects of virtual currencies, as well as the associated taxation implications, Tax Deducted at Source (TDS) liabilities, and the treatment of losses and Non-Fungible Tokens (NFTs), is of utmost importance for individuals and businesses venturing into this dynamic and ever-evolving landscape. By arming themselves with this knowledge, people engaging in such virtual currency transactions can confidently navigate the intricacies of virtual currencies, enabling them to make informed financial decisions while ensuring strict adherence to the relevant regulations. It is crucial to stay well-informed and adapt to the constant changes that characterise the realm of virtual currency transactions. By doing so, individuals and businesses can effectively harness the immense potential offered by these digital assets within the modern financial landscape.

Master the intricacies of tax reporting for airdrops, mining, and staking rewards in our comprehensive blog. Gain insights into staying compliant with tax regulations, unravel the tax implications of crypto activities, and optimise your returns while minimising tax liabilities. Unlock the secrets to confidently navigate tax reporting for airdrops, mining, and staking rewards, ensuring a smooth and hassle-free crypto journey.

Navigating Tax Reporting for Airdrops, Mining, and Staking Rewards

Cryptocurrencies have brought exciting opportunities for individuals to earn money through airdrops, mining, and staking. However, it's important to understand that these opportunities also come with tax obligations. In this article, we'll explore the tax implications of receiving airdrops, engaging in mining activities, and earning staking rewards. We aim to provide you with a clear understanding of how to report and manage your crypto income while staying compliant with tax regulations.

Airdrops - Surprises with Tax Implications

An airdrop refers to distributing cryptocurrency tokens or coins directly to specified wallet addresses, usually without any charge. Airdrops raise awareness about a particular token and boost liquidity in the early stages of a new digital currency.

When you receive an airdrop, it is similar to receiving a gift, and therefore, you are liable to pay taxes based on your income rate. The tax is determined by the token's fair market value (FMV) at the time of receipt. To calculate the income you have received, you can convert the fair market value of the tokens into Indian Rupees (INR) on the day you received them. Receiving airdrops without any payment is considered income from other sources. The value of the airdrop is determined by its fair market value on the date of receipt. Furthermore, any expenses incurred by you in obtaining the airdrop can be deducted.

When you sell the cryptocurrency at a later stage, the income generated from the sale will be subject to a tax rate of 30%. To compute the taxable income, subtract the cost price of the virtual currency or distributed airdrops from the sale price. The cost price is determined by the fair market value of the airdrops at the time of receipt.

Mining - Unearthing Cryptocurrency Rewards

Mining involves verifying and recording transactions on a blockchain network using powerful computers or specialised mining hardware. In the blockchain network, a group of computers called miners competes to solve complex mathematical problems to validate transactions. The miner who successfully solves the puzzle first is rewarded with a certain amount of cryptocurrency, which depends on the specific blockchain network.

Income generated from mining can be categorised as follows:

If mining is the main business activity of the entity, the income will be subject to taxation as "Business Income." In such cases, individuals operating a mining farm can deduct expenses related to running the farm.

The rewards earned from mining will be considered business assets for the miner. However, if the miner holds these rewards as investments, they will be treated as capital assets.

When the miner sells these cryptocurrencies later, the income generated will be taxed at a rate of 30%. To calculate the taxable income, subtract the cost price from the sale price. The cryptocurrency's fair market value determines the cost price at the time it was received.

Staking - Passive Income with Tax Considerations

Staking means verifying transactions on the blockchain and earning rewards. One significant advantage of staking is that you can earn money without selling the cryptocurrency you own.

Running a validator node: This involves running software and hardware to become a validator. For Ethereum, you need to have 32ETH to stake on your own.

Delegating with a non-custodial wallet: Instead of running your node, you can delegate your ETH to a validator using a non-custodial Ethereum wallet.

DeFi staking protocols: There are decentralised staking protocols like Lido or Rocket Pool, where you can stake your assets.

Centralised staking products: Some centralised exchanges like Binance or Coinbase offer staking services.

Let's use Ethereum as an example to understand these methods better. You can stake directly as a validator if you have 32ETH and the necessary software and hardware. Alternatively, using a non-custodial wallet, you can delegate your ETH to a validator. You can also use decentralised staking protocols like Lido or Rocket Pool. Finally, centralised exchanges like Binance or Coinbase provide staking options too.

However, it's important to note that the Income Tax Department has not provided specific guidelines for taxing staking rewards. If you participate in staking as part of a Proof of Stake (PoS) consensus mechanism, you may need to pay income tax based on your individual tax rate when you receive staking rewards.

The income from staking is considered regular income and is subject to taxation at normal rates. So, when you stake, it's crucial to be aware of potential tax obligations on your earnings.

The taxable amount will be based on the value of the received tokens in Indian Rupees (INR) on the day you receive or accrue them. Additionally, if you decide to sell, swap, or spend your staking rewards later on, you'll need to pay a 30% tax on any profits you make.

As cryptocurrencies gain popularity, it's crucial to understand the tax implications of airdrops, mining, and staking rewards. By recognising the taxable nature of these activities and staying informed about fair market value calculations and tax rates, you can confidently navigate the world of crypto income. Remember to consult a knowledgeable accountant or tax professional to ensure compliance with tax regulations and make the most of your financial endeavours.