04 Oct

Crypto currency and crypto currency taxes under income tax

Crypto currency and crypto currency taxes under income tax

Crypto currency is a digital, decentralized currency that is issued by a private enterprise to act as an idea of ​​a transaction between two individuals or businesses without direct government intervention. There are about 4000 different crypto currencies in the world and about 15 million people have invested $ 1.36 billion in crypto currencies in India. Some of the famous crypto currencies are Bit coins, Doge coins, Etherium etc.

In India, there are no specific rules or guidelines by the RBI, the Central Government or any other financial regulatory body that can declare or regulate crypto currencies in India. The RBI has imposed a complete ban on crypto currency on April 6, 2018, and has instructed financial institutions not to make or accept any payments in this regard.

However, on March 4, 2020, in the case of The Internet and the Mobile Association of India v. Reserve Bank of India, the Supreme Court lifted these restrictions and deemed them illegal and unenforceable. In this way, it gives some kind of legitimacy to crypto currency in India.

How crypto currency works in India

Crypto currencies are sold in India in two ways

1. By Mining: This process is a sophisticated, costly and time-consuming process where the trader earns crypto without investing money. They have to solve complex mathematical equations with computer programs. A small amount of crypto currency is obtained in exchange for the first coder cracking the code to authenticate and verify the transaction and then adding it to a public ledger called a block chain.

2. by exchanges: Crypto currency exchanges can be broadly divided into 3 types

(i) Centralized exchange

Centralized exchanges are the most accepted and used forms of crypto currency in the world that is regulated directly by the central authority. They offer high liquidity rates and fast transactions.

(ii) Decentralized exchange

The system is a peer-to-peer marketplace that connects sellers to buyers or investors without any intermediaries or regulatory intervention. They provide higher security, transparency and more control over trade and allow users privacy.

(iii) Hybrid exchange

It has both the advantages of centralized and decentralized crypto currency by merging privacy and security and offers a highly fluid, fast transaction and regulation framework. They allow users to take custody of their funds, even with the involvement of third parties.

Taxability of crypto currency in India

Crypto currencies are taxable based on the nature of their investment

1. Currency: Profits from the sale of crypto currency may be taxable under business income if it is kept for commercial purposes and is frequently traded. Profit will be taken according to the slab rates applicable according to the nature of the individual.

2. Assets: Profits from the sale of crypto currencies are taxable as capital gains if kept for investment purposes. If the variables are kept for 3 years, they will be treated as Short Term Capital Profit (STCG). And if it is kept for more than 3 years, it will be taxed at a 20% rate (LTCG) with indexation.


If investors with an annual income of more than Rs 50 lakh are required to disclose their assets and liabilities along with the cost of acquisition and the amount of currency they have. In addition, taxpayers who are residents and ordinary residents have disclosed their foreign income assets in their annual returns

For more information contact the author on santoshpatil@alltaxfin.com or 9769201316

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