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India is leading the world in crypto adoption despite an unfriendly government regime that opposes the industry in the South Asian nation.
According to crypto research firm Chainalysis, India ranked first – for the second year in a row – in the 2024 Global Adoption Index despite high crypto taxation and unclear regulations.
Is crypto legal in India in 2024? In this article, we talk about the current state of cryptocurrency regulations in India.
Key Takeaways
- India ranked first in Chainalysis’ 2024 Global Adoption Index for the second year in a row.
- Cryptocurrencies in India are unregulated. The Indian government has neither legalized nor banned cryptocurrencies.
- Indian lawmakers sought to ban cryptocurrencies in 2021.
- Most centralized crypto exchanges in India do not allow customers to withdraw their tokens to their crypto wallets.
- India advocated the creation of a comprehensive “globally-coordinated” crypto regulatory framework in 2023.
Current Legal Status of Cryptocurrency in India
The legal status of cryptocurrencies in India remains unclear. As of September 2024, the Indian government has neither legalized nor banned cryptocurrencies.
Cryptocurrencies in India are unregulated as the government has yet to form rules and regulations for the crypto industry.
The closest India came to regulating cryptocurrencies was in November 2021 when The Cryptocurrency and Regulation of Official Digital Currency Bill was set to be introduced in the Lok Sabha, the lower house of India’s bicameral Parliament.
The crypto bill sought to prohibit “all private cryptocurrencies” and create a framework for the creation of a central bank digital currency (CBDC) issued by the Reserve Bank of India (RBI).
However, discussions regarding ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ were postponed.
In May 2024, India’s finance minister Nirmala Sitharaman in an interview with businessline hinted that global coordination was needed to regulate cryptocurrencies.
“I would like to go through the route of global understanding when everybody is on the same page,” said Sitharaman.
“Bringing a regulation just within one country without a global understanding on a technology that does not brook any borders is not going to help.”
Unfriendly Crypto Regime in India
The stance towards the crypto industry in India can be described as unfriendly. Here’s why:
RBI’s Anti-Crypto Stance
The RBI has repeatedly recommended the government to prohibit cryptocurrencies in India. In April 2018, the RBI ordered financial institutions to stop providing services to individuals and businesses dealing in cryptocurrencies.
Luckily for the Indian cryptocurrency industry, the country’s Supreme Court overturned the RBI ban in 2020 and allowed banks to handle crypto-related transactions.
Good news!
The Reserve Bank of India is directing Indian banks to stop deplatforming crypto customers. The ruling these risk-averse banks were referencing is now officially "set aside" and "no longer valid".
Official URL: https://t.co/9DbWDb0kX0 pic.twitter.com/dC074gIqKk
— Balaji (@balajis) May 31, 2021
2021 Crypto Bill Proposed to Criminalize Cryptocurrencies
Additionally, the proposed 2021 crypto bill sought to create laws allowing authorities to arrest individuals who violated the crypto ban without a warrant and being held without bail, Reuters reported, citing internal sources.
Indian Crypto Exchanges Ban Crypto Token Withdrawal
Most centralized crypto exchanges in India, including CoinDCX, WazirX, CoinSwitch, and Unocoin, do not allow customers to withdraw their crypto tokens to self-custodial crypto wallets.
In a press release dated July 2022, CoinDCX said the exchange was seeking regulatory clarity on crypto transfers before offering token transfers to retail customers.
We do not support Crypto withdrawals at the moment, Amit. However, our team is working tirelessly towards a simple and seamless solution. Stay tuned for updates.
— CoinSwitch: India's Simplest Crypto App 🚀 (@CoinSwitch) September 2, 2024
India Bans Crypto Exchanges
Is crypto trading legal in India? In December 2023, India’s anti-money laundering (AML) watchdog, Financial Intelligence Unit (FIU), sent a show cause notice to nine offshore crypto exchanges, including Binance, Kraken, KuCoin, and Bitfinex.
The FIU said that the crypto exchanges were “operating illegally” in India and were not compliant with the nation’s AML laws.
Since the legal notice, the websites of the above-mentioned offshore crypto exchanges were banned in India.
Crypto users with accounts at banned exchanges are advised to move their assets to a self-custodial crypto wallet or to a FIU-registered exchange.
There is hope that international exchanges will make a comeback in India. In August 2024, Binance registered with the FIU and relaunched its services in India.
Crypto Taxation in India
In this section, we discuss the taxes on cryptocurrency in India.
The unfriendly stance of the Indian government towards cryptocurrencies was highlighted when India introduced harsh crypto taxes in the Union Budget for 2022-2023.
There are two crypto taxes that crypto traders in India need to be aware of:
As a committed India Web3 builder, it's disheartening to see how things have played out. The 1% TDS imposition on every trade not only strained the resilience of Indian traders but also obliterated any chance of India's competitive advantage in leading the web3 space with…
— Sumit Gupta (CoinDCX) (@smtgpt) November 10, 2023
High Crypto Taxes Compared to Other Countries
Crypto taxes in India are higher than those in the US, UK, and other regions.
While India imposes a flat 30% capital gains tax on crypto transactions and a 1% tax deducted at source, crypto investors in the US incur crypto taxes between 0% to 20% depending on their overall taxable income and length of holding.
In the UK, crypto investors are allowed to deduct losses from gains made in the same tax year. No such deduction is allowed in India.
Additionally, crypto taxation in the UK is more well-defined compared to that in India.
UK-based employees who earn their salaries in cryptocurrency do not have to pay capital gains tax on their virtual assets if they have already paid income tax on them. No such rules are defined in India.
3 Major Risks of Crypto Trading & Investing in India
1. Lack of Crypto Investor Protection
The absence of crypto rules in India means that the Indian judicial system is handicapped in settling crypto-related disputes.
We saw this scenario play out in July 2024, when popular crypto exchange WazirX lost $230 million in customer funds in a hack.
The crypto exchange was quick to disable fund withdrawals for its customers. Later, WazirX resorted to a “partial lock” of the customer’s crypto portfolio balance.
In early September 2024, Coindesk reported, citing legal advisers, that WazirX customers were “unlikely” to receive all their crypto assets back.
At the time of writing, a Singapore High Court was hearing WazirX’s request for six months’ protection to restructure its liabilities.
At WazirX, our commitment to transparency and community welfare is paramount. There was a cyber attack on one of our multisig wallets. Below are the preliminary findings to clarify the situation:
» Incident Overview: A cyber attack occurred in one of our multisig wallets…
— WazirX: India Ka Bitcoin Exchange (@WazirXIndia) July 18, 2024
2. Ban on Crypto token Withdrawals
In India, centralized crypto exchanges do not allow customers to withdraw their crypto tokens to self-custodial crypto wallets.
Indian crypto exchanges have cited the lack of crypto regulatory clarity as the main reason behind this rule.
The inability to withdraw crypto tokens from Indian crypto exchanges creates an invest-and-trade-only condition for customers.
Indian crypto users are being prevented from using their digital assets across decentralized finance (DeFi) applications and websites, which are accessible via self-custodial crypto wallets.
More importantly, the ban on token withdrawals exposes crypto users to exchange risk.
If WazirX had allowed token withdrawals, fewer customers would have lost their crypto assets to the $230 million hack in July 2024.
3. Crypto Regulatory Uncertainty
The unfriendly stance towards the crypto industry in India has made Indian crypto users nervous about potential bans and criminalization of cryptocurrencies.
It comes as no surprise that many Indians are confused about whether crypto is allowed in India. This uncertainty has hindered crypto adoption in India.
Is Crypto Mining Legal in India?
Crypto mining is legal in India. Although, miners have to be aware of the tax implications of their mining activities.
According to crypto exchange WazirX, if mining is the primary business activity of an entity, then the mining rewards will be subjected to taxation under ‘Business income’ category.
In such cases, miners are eligible to deduct their operating expenses when paying income taxes on their crypto assets.
Capital gains taxes are applicable if the miner sells their tokens for a profit.
Note that laws related to crypto mining have not been drafted in India.
Future of Cryptocurrency Regulation in India
The future of cryptocurrency regulation in India remains uncertain. We cannot say for certain whether Bitcoin and crypto trading will remain legal in India in the future.
In recent years, a positive takeaway has been that Indian lawmakers have showcased a patient approach toward cryptocurrency regulation and have not rushed to pass anti-crypto laws as proposed in 2021.
At the G-20 summit held in New Delhi in 2023, India advocated the creation of a comprehensive “globally-coordinated” crypto regulatory framework.
India also requested the International Monetary Fund (IMF) and Financial Stability Board (FSB) to develop recommendations on crypto regulations.
The Union Minister of State for Finance, Shri Pankaj Chaudhary, said:
“Crypto assets are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any legislation for regulation or for banning can be effective only with significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards.”
The Bottom Line
We could see friendly new rules for cryptocurrency in India if lawmakers stay true to their words of forming “globally-coordinated” crypto regulations.
Crypto users in India will look at the approval of spot Bitcoin ETFs in the US and the recognition of crypto assets as personal property in the UK as positive developments that they hope will be replicated in their country.
But whatever happens, crypto laws in India are inevitable, just as in the rest of the world.
FAQs
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References
- 2024 Global Crypto Adoption Index – Chainalysis (Chainalysis)
- BULLETIN-PART II (General Information relating to Parliamentary and other matters) (Loksabhadocs.nic)
- Nobody has the right to curb entrepreneurship, says FM Nirmala Sitharaman – The Hindu BusinessLine
(Thehindubusinessline) - India proposes law to ban cryptocurrencies, create official digital currency | Reuters (Reuters)
- Balaji on X (X)
- Proposed India bill banning crypto payments could mean jail for violations -document | Reuters (Reuters)
- Update on Crypto Transfers (Info.coindcx)
- CoinSwitch: India’s Simplest Crypto App 🚀 on X (X)
- Press Release:Press Information Bureau
(Pib.gov) - Access Denied (Indiabudget.gov)
- Digital assets | Internal Revenue Service (Irs)
- Capital Gains Tax: what you pay it on, rates and allowances: If you make a loss – GOV.UK
(Gov) - WazirX Withdrawal Management Programme – Opinion Poll: User Questions and Answers – WazirX Blog (Wazirx)
- Extremely Unlikely Hacked Crypto Exchange WazirX Customers Will Be Made Whole in Crypto Terms: Legal Advisers (Coindesk)
- WazirX: India Ka Bitcoin Exchange on X (X)
- The Guide to Taxation of Crypto Airdrops, Mining, and Staking Income: Everything You Need to Know – WazirX Blog (Wazirx)
- G20 leaders endorse FSB recommendations on regulation of crypto assets – The Economic Times (Economictimes.indiatimes)
- IMF-FSB Synthesis Paper: Policies for Crypto-Assets (Fsb)
- Press ReleaseI:Press information Bureau
(Pib.gov)
