Is Crypto Trading Legal in India? Here’s What to Know

Is Cryptocurrency Trading Legal in India? Tax, Risks & Regulations

Cryptocurrency trading in India exists in a gray area. While it is not illegal to trade in digital assets like Bitcoin and Ethereum, there is also no specific regulation governing this space. This means that while you can buy, sell, or hold cryptocurrencies, they aren’t recognized as legal tender by the Indian government. The only official currency in India is the Indian Rupee, issued and regulated by the Reserve Bank of India (RBI). So, businesses are not obligated to accept crypto as payment, and any transactions made with cryptocurrency fall outside regulated financial norms.

Crypto and Taxes

Even though the legal status remains unclear, the Indian government imposes taxes on crypto transactions. If you sell cryptocurrency and earn a profit, a hefty 30% tax applies to your capital gains. Additionally, a 1% tax deducted at source (TDS) on all crypto transactions was introduced in the 2022 Union Budget. This tax policy indicates the government's recognition of the trading activities happening within the crypto space, even if it doesn’t officially regulate or endorse these assets.

Past and Present Regulatory Moves

The Indian crypto market has faced challenges in the past. In 2018, the RBI imposed a banking ban on cryptocurrency transactions, prohibiting banks from facilitating crypto-related services. This restriction put immense pressure on the industry. However, in March 2020, the Supreme Court lifted the ban, allowing exchanges and traders to re-enter the market. Recently, however, India cracked down on non-compliant exchanges, banning nine exchanges in early 2024 for failing to meet anti-money laundering laws.

The government is also considering a bill titled Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019. This bill could ban private cryptocurrencies, criminalizing activities involving them. If passed, the bill would effectively ban all crypto dealings except those associated with an official government-issued digital currency.

The Risks of an Unregulated Market

India’s crypto market, due to its unregulated status, comes with risks for investors. Fraud, scams, and market manipulation are more common in unregulated spaces, as seen with notorious scams like GainBitcoin and ATC Coin. Moreover, the anonymity of crypto transactions can attract money laundering and other illegal activities, adding potential financial instability risks to the traditional market. Until clear regulations are set, investing in cryptocurrency remains high-risk.

In conclusion, while cryptocurrency trading is not illegal in India, the lack of regulation creates a risky environment. For those entering the crypto world, understanding these risks and keeping up with potential legislative changes is essential. The government’s ongoing consideration of a regulatory framework indicates that a more defined stance may soon emerge, which could clarify the future of cryptocurrency in India.