Is cryptocurrency legal tender in India? What we know so far. 10 points

Finance Minister Nirmala Sitharaman's proposal to tax virtual assets has sparked a debate over the legality of cryptocurrencies in India. While many have welcomed the decision to tax digital currencies thinking that it is the first step to recognise the virtual currencies, the government has not yet clarified whether currencies like Bitcoin can be considered legal tender in India.

During a post-budget press conference, Sitharaman said consultation is underway on crypto regulation and what is legal, what is not will be clear once the regulatory document is finalised. 

-  However, Finance Secretary TV Somanathan today said cryptocurrencies like Bitcoin or Ethereum will never become legal tender. 

- The finance minister has also proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the RBI starting 2022-23.

-  Somanathan said the digital rupee will be backed by RBI which will never default. "Money will be of RBI but the nature will be digital. The digital rupee issued by RBI will be the legal tender. We can purchase non-digital assets with the digital rupee like we purchase an ice cream or other things using our wallet or payments through UPI platform."

"Rest all are not legal tender, will not, will never become legal tender. Bitcoin, Ethereum, or any picture of Actor become NFT will never become a legal tender," he said while speaking to ANI.

- Somanathan further said that crypto assets are assets whose value is determined between two people, you can buy gold, diamond, and crypto assets, but that value will not have authorisation by the government. 

-  People investing in private crypto should understand that it is not having the authorisation of the government. There is not any guarantee that your investments will be successful or not, one may lose money and the government is not responsible for this, the finance secretary added.

-  The Finance Secretary, however, clarified that the things which are not legal don't mean that they are illegal. "I am not saying that Bitcoin or Ethereum is illegal, but that is not illegal too. But I can say that if regulation comes for cryptocurrency then also it will not be a legal tender," said Somanathan.

- Speaking on the regulation of crypto, the finance secretary said it may seek KYC, seller's license, but it will be decided by the government later with wide consultation with stakeholders. The government, he said, will also see what is happening in other countries.

- Somanathan also said that the digital rupee will not be like Bitcoin and Ethereum. "Through digital rupee, you do your transaction like what currently you are doing through your digital wallets like Paytm, UPI. The digital rupee is a legal tender and equivalent to cash payments we do," he said.

In her budget speech, the finance minister on Tuesday said there has been a phenomenal increase in transactions in virtual digital assets and the magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime. "Accordingly, for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30%," she added.

The finance minister said no deduction in respect of any expenditure or allowance shall be allowed while computing such income except the cost of acquisition. Further, loss from the transfer of virtual digital assets cannot be set off against any other income. A gift of avirtual digital asset is also proposed to be taxed in the hands of the recipient, she said.

-The Finance Secretary today clarified the tax on digital assets. He said currently the government does not have clarity on cryptocurrency, whether it is business income, capital gain or it is speculative income. 

- "Some people declare their crypto assets, some do not. Now from April 1, 2022, a uniform rate of 30% tax will apply on the transfer of digital assets," he said. 

- "This is not only for crypto, this is for all speculative income. For example, if I take horse racing, that also attracts 30% tax. There is already a 30% tax on any speculative transaction. So we have decided to tax crypto at the same rate. Crypto is a speculative transaction, so we are taxing it at a 30% rate," said Somanathan.