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  • Notwithstanding the eventual introduction of the Cryptocurrency and Regulation of Official Digital bill in Parliament, cryptocurrencies continue to proliferate.
  • At the moment, there is no legislature that covers cryptocurrencies in India. In India, owning cryptocurrencies is still not illegal. In 2020, the Supreme Court had struck down a ban on trading of crypto currency in India, which was imposed by the Reserve Bank of India (RBI).


Benefits Associated with Cryptocurrency:

  • Fast and Cheap Transactions: Cryptocurrencies are way cheaper to use to execute international transactions because the transactions don’t have to be handled by a series of intermediaries before they reach their destinations.


  • Investment Destination: There is a limited supply of cryptocurrency – partially like gold. Moreover, the last few years have seen the price of cryptocurrencies rising faster than other financial instruments.
  • Due to this, cryptocurrencies can become a preferred investment destination.


  • Anti-Inflationary Currency:Due to high demand of cryptocurrency its prices have largely remained on a growing trajectory. In this scenario, people tend to hold more cryptocurrency than spending it.
    • This will cause a deflationary effect on currency.

Concerns Associated with Cryptocurrencies:

Misleading youths through advertiements: 

The crypto market is seen as a way to earn quick profits. Due to this, there is bombardment of advertising, both online and offline, to lure people into speculating in this market.

  • However, there are concerns that these are attempts to mislead the youth through “over-promising” and “non-transparent advertising”.
Counterproductive Utility: 

Unregulated crypto markets can become avenues for money laundering and terror financing.


Volatile in Nature: 
  • Bitcoin skyrocketed from USD 40,000 to reach an all-time high of USD 65,000 (between January to April 2021).
  • Then in May 2021, it plunged and throughout June it remained below USD 30,000.


IT Act 1961:
  • Although the Income Tax Act, 1961 does not specifically mention cryptocurrencies, it has a wide net to bring crypto transactions under its ambit.
  • It may be classified as a transfer of a capital asset taxable under capital gains
  • Also can be taxed under business income
  • Even if it does not fall under above heads, Sec 56 of the IT Act can be considered which categorises “ Other sources of income”


Absence of Explicit Tax Provisions:
  • Since there is no consistency in the rates provided by the crypto exchanges, it is difficult to arrive at a fair market value.
  • It is difficult to identify the tax jurisdiction as tax payers may have been engaged in multiple transfers across various countries and the crypto currencies may have been stored in online wallets on servers across India.
  • Identity of taxpayers remains anonymous


Way Ahead:
  • The Government must impart training to its officers in blockchain technology.
  • In this regard it may be noted that the United Nations Office on Drugs and Crimes’ has developed a unique cryptocurrency training module
  • Tax authorities should also equip themselves with latest forensic software.
  • It is certain that cryptos are here to stay, a streamlined tax regime is necessary.

Source: THE HINDU.