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The unregulated space of cryptocurrency has been largely perceived as volatile, unsafe and susceptible to untimely changes. Considering material volume of reported crypto transactions undertaken by Indians and the financial booming of trading platforms like CoinDCX, WazirX etc., regulation is a wiser choice as opposed to a complete ban. This contra situation of regulation v/s ban has come to an end by way of Budget 2022, as the Budget signals a decisive action to monitor crypto transactions by introducing a special tax regime under the law, considering its magnitude and frequency.


On scope of taxation, cryptocurrency as widely defined in the proposed law, is nothing but a class of asset. Its taxability is agnostic to legality and the regulatory framework surrounding holding of such assets from an exchange control perspective. Hence, regulatory framework and taxation need not align, at least in the present form.

As part of Budget 2022 proposals, transfer of virtual digital assets shall now be liable to Income Tax at the highest marginal rate of 30 per cent plus applicable surcharges. No deduction for any expenditure (apart from deduction for cost of acquisition) or set off of any loss shall be allowed while computing income from such transfer. Further, losses (if any) are prohibited to be offset against gains/income from other sources and not allowed to be carried forward to subsequent years. The transaction of gifting crypto assets shall be taxable in the hands of the recipients. The market of exchanging virtual digital assets has also been recognised in the Finance Bill. The new scheme shall take into effect from April 1, 2023.

A conservative and opportunistic approach of the government is evident from the broadly worded definition of “virtual digital assets”, which includes any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, non-fungible tokens and any forms of digital assets.

A bird’s eye view on the overall tax proposals suggest:

1. Application of maximum marginal Income Tax rate applicable to speculative securities trade;

2. Withholding tax of 1 per cent on payment for transfer of virtual digital asset to a resident;

3. Gift of virtual digital asset to be taxed in the hands of the recipient;

4. Possible levy of GST at the rate of 18 per cent (clarification awaited)

From a holistic view, transactions involving crypto will be subject to prohibitive tax.


The Budget proposals lay emphasis on India adopting an official digital currency (digital rupee) by introducing the Central Bank Digital Currency (CBDC) for a cost-effective currency management system. This will be issued by the central bank, RBI, in the forthcoming financial year. Accordingly, digital form of notes has been included in the definition of ‘bank notes’ with amendment to the RBI Act, 1934. It will mirror the physical currency in digital form and will be based on blockchain technology.

In a post-Budget press conference, the Finance Minister clarified that the proposal was meant to tax crypto ‘assets’ and not ‘digital currency’. Anything outside the ambit of digital currency (digital bank notes issued by RBI) is loosely referred to as ‘cryptocurrency’ but will actually be considered as ‘assets’.

In conclusion, it seems India has drawn inspiration from developments in matured jurisdictions. In Canada, revenue generated from cryptocurrencies is subject to Income Tax. Japan and USA permit the use of cryptocurrencies as a payment system.

India’s journey from deliberating “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019” to the proposed “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” is a positive one. The first step of recognising the crypto world has been laid down under the tax code and a path to future regulation seems visible. Separately, the RBI has been discussing various aspects of cryptocurrencies and India may well witness regulatory framework on crypto taking shape in the near future.

Concerns surrounding applicability of GST, whether to be characterised as goods or securities and applicable rates will remain until GST Council takes a view. Other aspects such as base of levy and valuation are also likely to be addressed as part of the GST framework.

Mukesh Butani is Managing Partner and Divyasha Mathur is Senior Associate, BMR Legal Advocates.

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