Bitcoin is certainly the most popular cryptocurrency in the world right now, and India stands to benefit considerably from this revolutionary technology. However, there is a lot of confusion amongst the citizens regarding the legal status of Bitcoin (and other cryptocurrencies). This may partially be due to the fact that no clear rules and regulations are surrounding the crypto space as of now and partially due to the controversial banking ban issued by the RBI in 2018 (which was later repealed by the Supreme Court in 2020). There’s also a lack of clarity on what the government’s stance is. To answer the pressing questions, including “Is Bitcoin Legal in India?” and to clear any confusion regarding the status of cryptocurrency taxation in India, we have answered nine of the most frequently asked questions surrounding Bitcoin’s legal status in India.
Q1- Is it legal to buy Bitcoin in India?
Yes, Bitcoin is 100% legal in India. Currently, no clear laws and regulations exist to regulate Bitcoin as of August 2021. While the Government might introduce regulations in the future, exchanges like WazirX already operate on self-imposed regulations, where we hold ourselves to the same standards as a traditional exchange.
Q2- How do I ensure that my Bitcoin is stored safely?
To store your bitcoins, you have two options: cold wallets or hot wallets. Hot wallets are online wallets connected to the internet and are convenient for transactions but are a little less secure when compared to cold wallets. Hot wallets are usually not recommended for storing large amounts of bitcoins.
Alternatively, cold wallets are a safer option for safely storing your bitcoins, as they are offline wallets or hardware wallets. You can read more about these wallets to secure your bitcoin storage and prevent it from scams.
Q3- What are the legal procedures to buy bitcoin in India?
- The first step is to register yourself on a trusted crypto exchange platform. It is the most crucial step as you have to choose the most reliable and trustworthy crypto exchange platform for safe and secure trading. One such reliable and most trusted crypto exchange is WazirX.
- After registering, you have to verify your KYC by providing legal documents such as a pan card, an Aadhaar card, etc. Again, it is recommended that you choose an exchange with proper KYC and AML procedures to ensure 100% legal compliance.
- Add your bank details and UPI details to the crypto exchange and wait once all the verification completes.
- Lastly, you can add money to your trading account via your bank and then use it to buy bitcoin on the crypto exchange.
Q4- What are the Government’s views on buying or selling Bitcoin?
The Government has concerns over using Bitcoin for making payments for illicit activities such as money laundering, tax evasion, terrorism financing, etc. The Government intends to prevent the illegal usage of cryptocurrencies. However, as we’ve discussed in a recent post, blockchains can be excellent forensic tools to catch malicious actors.
There was a banking ban in 2018 issued by the RBI due to retail investors falling prey to scams in the largely unregulated crypto market. However, as we’ve mentioned earlier, that ban was deemed unconstitutional by the supreme court in 2020. While concerns regarding the unregulated market continue to exist, we are lobbying the government for positive regulations in the crypto space.
Q5- What are the tax implications for Bitcoin in India?
Cryptocurrency taxation in India is definitely one of the most confusing aspects when buying bitcoins. Neither the Income Tax Act nor the several GST acts define cryptocurrencies. However, you are liable to pay the taxes on the gains from the sale of Bitcoin in India. Profits from the sale of Bitcoin will usually be taxed under the head capital gains (depending on the duration of holding, either short-term capital gain or long-term capital gain).
However, if you trade in Bitcoin by profession, any gains (or losses) will appear under the head Profits/Gains from Business or Profession. Consult your Chartered Accountant on whether or not these profits/losses are characterized as speculative in nature, as they are treated differently under the Income Tax Act. Incidentally, if you’re gifted Bitcoin, it will be taxed under the head Income From Other Sources, provided that the gift crosses a prescribed threshold.
Q6- What is the minimum amount needed to buy Bitcoins in India?
It depends on the cryptocurrency exchange. While the price of a Bitcoin may be in tens of lakhs, you have the option to buy a fraction of bitcoin for as low as INR 100. For example, WazirX allows you to buy Bitcoin for as low as INR 100.
Q7- Is Bitcoin mining legal in India?
The legal status of Bitcoin mining is not clear in India and still faces uncertainty. Mining Bitcoin requires a lot of energy, and it consumes about 60 terawatt-hours annually. But the government practically banned the import of ASIC machines in India in 2017.
A ban on ASIC machines leaves the miners with GPU mining, which is an energy-intensive process and is not a desirable option considering the high electricity costs and low efficiency. In fact, Bitcoin miners have abandoned GPU mining altogether, as it is deemed to be unprofitable.
Q8- What legal steps should be taken to safeguard against Bitcoin fraud and scams?
Here are a few steps to consider before deciding to invest in Bitcoin.
- There are various fake crypto exchange platforms out there, and there is a need to do market research before buying bitcoins from an exchange platform. Stick to reliable and trusted crypto exchange platforms such as WazirX.
- Make sure to safely store your bitcoin in an offline wallet for better security.
- Make sure you set up two-factor authentication for your online crypto-wallets.
- Never share your private key or login credentials with anyone.
Q9-Will Bitcoin be accepted as a legal mode of payment?
Since Bitcoin still lacks a regulatory framework, accepting payments in Bitcoin in India is still uncertain and unclear. Globally, many use crypto assets as a mode of payment due to easy global transfer and lower transaction costs than bank transfers. However, there is uncertainty about that future for Bitcoin as it still lacks a regulatory framework.
We hope this guide answered a few of your questions regarding the legal status of Bitcoin and whether it is legal to buy Bitcoin in India or not. If you’re looking for more information regarding the wide world of crypto, head on over to our blog page – where we publish informative articles regularly for your benefit.