Crypto Currency is a virtual or digital currency that is secured by cryptography. Cryptography uses blockchain technology, which makes it impossible or nearly impossible to counterfeit or double-spend. The cryptocurrencies are generally not issued by the government or central bank of the country.
Blockchain technology is not a type of cryptography however cryptography is a type of blockchain technology. Now there are more than 12,000 cryptocurrencies around the world. Examples of cryptocurrencies are Bitcoin, Ethereum, Litecoin, XRP, Tether, Cardano and Dogecoin, etc.
Legal Tender of Crypto Currency
Currently only two countries (EL Salvador (w.e.f. 09.06.2021) and Central Africa (w.e.f. 23.04.2022) have allowed crypto to be a legal tender. More than 40 countries have either completely banned or restricted the use of crypto.
Cryptocurrency creates a parlor monetary system against the government/ Central Bank therefore the governments of the different countries do not want to promote it, further they do not have any control over it and this is not backed by any physical assets all fluctuation in the prices is due to the reason of demand and supply.
Legal Tender of Crypto Currency in India
The Reserve Bank of India through its Circular No. RBI/2017-18/154 dated 6th April 2018 has prohibited dealing in Virtual Currencies in India.
In the above circular RBI said that ”In view of the associated risk in virtual currencies, it has been decided that, with immediate effect entities regulated by the Reserve Bank shall not deal in Virtual Currency or provide services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipts of money in accounts relating to purchases /sales of Virtual Currencies”.
After the above circular, Crypto Currencies were banned in India however on March 4, 2020, the Supreme Court of India quashed the ban that RBI had imposed on trading in Cryptocurrencies like Bitcoin in April 2018.
Reserve Bank of India Governor Mr. Shaktikanta Das on 30th June 2022 said that Cryptocurrencies are a “Clear Danger” and said that anything that drives value based on make-believe, without any underlying is just speculation under a sophisticated name.
Taxation of Crypto Currency in India
Before the Finance Bill 2022, there were no clear rules for the taxation of cryptocurrencies in India. Therefore a lot of people were not disclosed the income/gain earned from the cryptocurrencies. Some people were offered it under the capital gain head of income and some people offered it as income from other sources/income from business and profession.
However, in the Finance Bill 2022, the Finance Minister Mrs. Nirmala Sitaraman came up with the concept of digital assets and taxed the income/gain of virtual digital assets such as crypto, NFTs @ 30% on tax amount (Surcharge @10%/15%/25%/37% (if applicable as per income) +Education Cess @4%) and TDS will be deducted @ 1% at source w.e.f. 1st July 2022.
No deduction, except the cost of acquisition, will be allowed while reporting the income of transfer/sale of digital assets.
Further, the loss from digital assets cannot be set off against any other income. Furthermore gifting of digital assets will attract tax in the hand of the receiver. Furthermore, the loss incurred from one virtual digital currency cannot be set off against income from another digital currency.
According to some media reports the GST Council has constituted a committee that will soon take up the proposal to impose 28% GST on all activities and services related to crypto. The proposal may be tabled before the GST Council in its next meeting.
The Indian government has not legalized crypto however used it as a revenue generation source for the government by taxing it. In conclusion, I can say that Government does not want to promote/support it.