India to Adhere to Global Crypto Regulations, Regardless of Bitcoin Rally: Finance Ministry

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

The recent US presidential elections have had a palpable impact on the cryptocurrency market. While prices have surged to new highs, with Bitcoin reaching record levels, the Union Finance Ministry has maintained that India will prioritize its own economic policies and adhere to global regulations on cryptocurrencies, irrespective of the current surge or hype.

According to a source within the Finance Ministry, India will adhere to its own policies and not be influenced by other countries' actions. 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 a new record high, closing at $94,078. The surge can be attributed to several key developments in the crypto and financial sectors.

Reports indicate that Donald Trump's media company is exploring the acquisition of crypto trading firm Bakkt, and BlackRock's iShares Bitcoin Trust has introduced options trading. The rise above $94,000 highlights Bitcoin's growing status as an institutional asset.

A Trump administration that is seen as crypto-friendly and speculation of Microsoft treasury incorporating Bitcoin, following Michael Saylor's (MicroStrategy) suggestion, have also contributed to the price surge.

The market's response to these developments has also impacted altcoins, leading to a brief rally followed by a correction. However, analysts remain positive, anticipating continued growth driven by institutional investors.

The cryptocurrency market has largely reacted positively to Donald Trump's presidency, with 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.

In India, however, 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 imposed on all transfers involving such assets.

A new Section 2(47A) was included in the Income Tax Act to clearly define and classify Virtual Digital Assets.

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.