'India to follow its global regulations on cryptocurrencies': FinMin source as Bitcoin breaches $94,000 mark

Despite the sudden rally in prices of Bitcoin following the US presidential elections earlier this month, the Union Finance Ministry has stated that the Centre will adhere to global regulations on cryptocurrencies, regardless of the current surge or hype. A source within the Finance Ministry informed Business Today that India will prioritise policies that are beneficial to its economy, without being influenced by other countries.

The official also mentioned that the Department of Economic Affairs is finalizing a paper on cryptocurrency, which will be released soon.

On Wednesday, Bitcoin touched its new record high, closing at $94,078. The surge can be attributed to significant advancements in the crypto and financial sectors. Reports suggest that Donald Trump's media company is exploring the acquisition of crypto trading firm Bakkt, while BlackRock’s iShares Bitcoin Trust has introduced options trading. The rise above $94,000 underscores Bitcoin's growing importance as an institutional asset.

The surge has been driven by factors such as the potential for a crypto-friendly stance under a Trump administration and the speculation of Microsoft incorporating Bitcoin into its treasury, as proposed by Michael Saylor of MicroStrategy.

The market's responses to these developments have impacted altcoins, prompting a brief rally followed by a correction. Despite these fluctuations, analysts maintain a positive sentiment and anticipate continued growth fueled by institutional investors.

The cryptocurrency market has experienced a surge of positivity in the wake of Donald Trump's presidency, as there is anticipation that his administration will be supportive of cryptocurrencies. This optimism stems from the belief that a more crypto-friendly stance could lead to the removal of regulatory barriers that have impeded the market's growth.

On the other hand, in India, the landscape presents a different set of challenges. Despite witnessing a gradual increase in the number of cryptocurrency enthusiasts and investors in recent years, there continues to be a lack of regulatory clarity in the country.

Taxation of cryptocurrency

The FY2022-23 Budget introduced a flat tax rate of 30% on gains from Virtual Digital Assets (VDAs) or crypto assets, irrespective of the individual's income tax slab rate. Additionally, a 1% tax deducted at source (TDS) was enforced on all transfers involving such assets.

To clearly define and classify Virtual Digital Assets, a new Section 2(47A) was incorporated into the Income Tax Act.

Starting from April 01, 2022, Section 115BBH of the 2022 Budget imposes a 30% tax (plus a 4% cess) on profits derived from trading cryptocurrencies or other virtual digital assets.

Effective from July 01, 2022, Section 194S now mandates a 1% Tax at Source on transfers of crypto and other VDAs exceeding INR 10,000 (or INR 50,000 in certain cases) within the same financial year.

Taxation on cryptocurrency transactions applies to a variety of individuals, such as private investors, commercial traders, and anyone participating in the exchange of digital assets within a particular fiscal year.

The tax rate is uniform across all income levels and does not distinguish between short-term and long-term profits.

If the transaction occurs on an Indian exchange, the exchange will withhold Tax Deducted at Source (TDS) and send the remaining funds to the seller. In this case, the buyer is not obligated to take any additional steps.