What Is Legal Status Of Bitcoin In India? From Taxes To Regulations, All You Need To Know

Bitcoin has been making waves in the headlines after surpassing the $100,000 mark, fuelled by the victory of crypto advocate Donald Trump in the US presidential elections.

Trump's promise to support digital assets and transform the US into a "crypto capital" with a favourable regulatory environment has contributed to this surge. The rally has also prompted discussions about cryptocurrency trading in India and its legal status.

Is Bitcoin legal in India?

Both Bitcoin and other cryptocurrencies are legal in India, following a Supreme Court ruling that lifted the previous ban imposed by the Reserve Bank of India (RBI). However, strict taxation laws apply, including a 30% tax on gains from Virtual Digital Assets (VDAs) and a 1% Tax Deducted at Source (TDS) on transactions over ₹50,000 (or ₹10,000 for specified categories).

The TDS is applicable to the total sale amount, regardless of whether a profit is made, and must be reported in the Income Tax Return (ITR) for a potential refund. It is also important to note that losses from one type of VDA, such as Ethereum, cannot be offset against gains from another, like Bitcoin.

How to invest in Bitcoin in India?

Investing in Bitcoin is possible through certified crypto exchanges. To start, individuals must register with their Know Your Customer (KYC) details, deposit funds using supported methods such as bank transfers, and then trade while keeping assets in secure crypto wallets.

When selling cryptocurrencies, it is crucial to ensure that TDS is deducted and that the proceeds are transferred to your bank account in full compliance with tax laws.

However, it is essential to be aware that crypto trading is highly speculative due to the volatile nature of prices, and cryptocurrencies are vulnerable to hacks and scams. Regulatory changes also pose a significant risk.

Regulatory risks of cryptocurrencies in India

For instance, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, aims to regulate the crypto industry by banning private cryptocurrencies while paving the way for the Reserve Bank of India's central bank digital currency (CBDC). However, this bill has been delayed. The proposed restrictions on private digital currencies are intended to mitigate risks such as money laundering and fraud.