Legal Status of Bitcoin in India
Parul Madaan 19 Feb 2020

Legal Status of Bitcoin in India


Cryptocurrency is digital money. It is considered to be more secure that the real money. Cryptocurrency uses something called cryptography to secure its transactions. Cryptography, to put it in simple words is a method of converting comprehensible data into complicated codes which are tough to crack. They are classified as a subset of digital currencies, alternative currencies and virtual currencies.

Bitcoin was the first crypto-currency ever to be developed in 2009. There was subsequently a significant increase in the number of cryptocurrencies produced some of which are Litecoin, Ethereum, Zcash, Dash, Ripple etc.

Bitcoin is one of cryptocurrency's earliest forms, forming part of peer-to-peer payment system worldwide. In India, bitcoins have gradually begun to gain popularity, given government efforts to move toward a cashless economy. However, one should know that as of today, Bitcoins are not centrally controlled or regulated by any particular body such as the RBI which administers physical currency in India. In reality, peer-to-peer transactions with bitcoins are managed using something known as the blockchain technology which for all transactions serves as a public ledger.

One can obtain bitcoins either by :

1.      Mining

Mining is an activity where a person (called the "miner") uses his computer abilities to crack puzzles which are computationally hard. The cracking process of such puzzles, which are integral to blockchain technology, helps to maintain them. The miner gets new bitcoins as a reward for this which is nothing but the production of a bitcoin or a mining.

2.      Buying them against real currency from a bitcoin exchange

Anybody can't be a bitcoin miner. Consequently, consider buying bitcoins from bitcoin exchanges and store them in digital form in an online bitcoin wallet. Unicorn, Bitxoxo, Zebpay, Coinbase etc., are some of India's present-day bitcoin exchanges. Those Bitcoins would be bought for real currency consideration. It would be interesting to note that at present, the value of 1 bitcoin is about INR 6,16,330.

3.      Receiving bitcoins in respect of the sale of goods and services.

Although this may not currently be a common phenomenon in India, there are few businessmen who accept bitcoins (instead of real currency) when selling goods or services, they are dealing in.

How to tax Bitcoins in India?

The idea of bitcoins being quite new to the Indian market, the government has evidently not yet incorporated the taxability of bitcoins into the statute books. At the same time, the tax levy on bitcoins cannot be ruled out as Indian income tax laws have always sought to tax revenue received regardless of the form in which it is received.

The probability of tax on bitcoins can therefore be discussed in the following circumstances:

1.      Bitcoin Mining

Bitcoins produced by mining are capital assets which are self-generated. Subsequent sale of such bitcoins would yield capital gains in the ordinary course. However, that the cost of purchasing a bitcoin can not be calculated because it is a self-generated asset. It does not fall within the provisions of Section 55 of the Income-Tax Act, 1961, which clearly describes the cost of acquiring any self-generated properties.

Thus, in the case of B.C.Srinivasa Shetty, the capital gains calculation mechanism fails following the Supreme Court decision. Therefore there would be no capital gains tax on bitcoin mining.

2.      Bitcoins held as stock-in-trade being transferred in exchange for real currency.

The revenue from Bitcoins trading activity would give rise to business income and consequently, the profits from such business would be subject to tax as per the individual slab rates.

3.      Bitcoins obtained in respect of the sale of goods and services.

Bitcoins received will be treated in par with money receipt. It would constitute revenue in the receiver's hands. However, since the beneficiary earned this revenue from a business or occupation, he will usually be paid under the head gains or profits from a business or occupation.


Legal Status in India

 Bitcoin has neither been approved nor controlled by any central authority as  means of payment. However, no fixed laws, regulations or guidelines have been formed to resolve disputes which may occur when dealing with bitcoins. India has no positive attitude to Bitcoins and other cryptocurrencies. A high level government panel has proposed a ban on all virtual cryptocurrencies in India.

Bitcoins in India had only started to gain momentum when the Reserve Bank of India (RBI)'s banking ban in 2018. RBI had then said that any entity it regulates, such as banks, wallets, etc., should not deal with or provide services for the purchase or sale of cryptocurrencies to any person or business entity.

In addition to the ban, the committee has also recommended an Rs 25 crore fine and up to 10 years imprisonment for any virtual currency-related activity carried out by individuals or companies.


The confusion stems from the fact that RBI banned banks from opening accounts for crypto exchanges in April 2018 and disallowed users to use banking channels to settle crypto transactions.

The problem has 2 parts-

1.      Buy / Sell Bitcoin

Buying or Selling is not illegal in India. Anything that's not specifically illegal is lawful. There is currently no basis under which anyone in India can call upon Bitcoin to buy and sell illegal. So, that’s why the exchanges are still operating in India.

2.      Routine payments using bitcoin.

It is illegal to make regular payments using Bitcoin. Bitcoin is not an Indian legal tender,i.e,  nobody can  use bitcoin to make daily payments such as buying coffee, renting, wages etc. That was made amply clear by India's government.

This ban does not illegalize bitcoin in India. This simply means you can't buy and sell bitcoins using bank accounts. This will definitely cripple opportunities to buy and sell bitcoin but will not make it illegal.

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