Addressing the Crypto Question in India: An Analysis of the Union Budget’s Crypto Tax Regime
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Addressing the Crypto Question in India: An Analysis of the Union Budget’s Crypto Tax Regime

The conversation about crypto regulation in India has come alive over the last two months, initially following rumors that a bill regulating private crypto-assets was set to be introduced by the central government in parliament and then as a result of the proposal by the Finance Minister to tax crypto-assets in the union budget.

The proposals outlined by the Finance Minister included a 30% tax on profits generated from the sale of crypto-assets and a 1% TDS on any transaction involving the sale of a crypto-asset. In this opinion piece, we discuss, in a bit more detail, the proposed tax regime envisaged by the central government.


The Finance Bill, 2022which is the legislation that will give legal effect to these proposalsdoes not use the term cryptocurrency or crypto-asset. Instead, it uses the term “virtual digital assets,” which has been defined in the following manner:

(a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically; 

(b) a non-fungible token or any other token of similar nature, by whatever name called;

(c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify:

Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein.

Explanation.––For the purposes of this clause,––

(a) “non-fungible token” means such digital asset as the Central Government may, by notification in the Official Gazette, specify;

(b) the expressions “currency”, “foreign currency” and “Indian currency” shall have the same meanings as respectively assigned to them in clauses (h), (m) and (q) of section 2 of the Foreign Exchange Management Act, 1999.

Analyzing the definition makes it clear that in their zeal to cover as many different types of crypto-assets as possible, the government has employed the use of a very wide definition. This definition appears to have been based on the definition of the term “cryptocurrency” first suggested by the Report of the Inter-Ministerial Committee on Virtual Currencies. The problem with using such a wide definition which includes “any information or code,” “whether generated through cryptographic means or otherwise,” is that it could technically even include prepaid payment instruments such as Airtel Money, Ola Money, etc.

This clearly is not the intent behind the legal provision and such confusion could have easily been avoided by specifically excluding prepaid payment instruments from the definition in the same way as the terms “currency” and “foreign currency” have been excluded.

Consistency of Government’s Stand

Although it is the first time that crypto-assets have been specifically recognized in the Indian tax regime, one must keep in mind that this is not a departure from the existing stance of the government as regards taxation of crypto-assets. The Minister of Finance, in response to parliamentary questions on November 30, 2021 and March 23, 2021, has repeatedly stressed the liability to pay taxes on any profits arising out of crypto trading under Indian tax law. However, it was not clear whether crypto profits are to be taxed as regular income, income from other assets, or as capital gains; the answer to the above question determining the rate of tax to be levied. Section 115BBH to the Income Tax Act, 1961 proposed in this budget brings about much-needed clarity and specifies that income or profits generated from the transfer of  “virtual digital assets” would be taxed at the rate of 30%. The provision further provides that any expenses incurred in carrying out such trades cannot be set off or deducted from the profits generated, except the amount spent on buying the crypto-asset in the first place. Further, in the case of losses incurred from crypto-asset trading, such losses cannot be carried over to subsequent financial years.

Tax Deducted at Source

Another important provision that has been introduced in this budget is the requirement to deduct 1% of the transaction value as a Tax Deducted at Source (TDS) by the person who is buying any crypto-asset. Such a provision would severely dent the trading volumes on crypto exchanges since this provision would require a 1% TDS on every single crypto trade that occurs on the platforms, provided that the aggregate value of crypto-assets bought by a person is greater than the limits specified (which are Rs. 50,000 and Rs. 10,000 in the financial year, depending upon the income of the assessee). Further compliance with this provision would require the buyer to know the PAN (Permanent Account Number) details of the other party, which is information that exchanges typically do not release to the counterparties. Almost a fifth of the investors on crypto exchanges in India are in the 18-20 year age bracket, a majority of whom are students who do not generally file income tax returns. In the backdrop of these complications, the industry body representing crypto exchanges in India has also decided to reach out to policymakers to brief them of the implementation issues arising out of these provisions.

It appears that in order to ensure that the provision for TDS is not circumvented by indulging in crypto-to-crypto trading instead of using fiat currency, the provision has also been made applicable to transactions where crypto-assets are bought or sold for consideration other than cash or currency. However since the drafting of the provision is so broad, it leads to a situation where a seller who accepts payments for goods or services in cryptocurrency would also become liable to withhold and pay the 1% TDS on behalf of the buyer. This is because the provision considers the cryptocurrency not as the payment for another item, but as the item being sold. The goods or services being sold by receiving payment in cryptocurrency would then be deemed to be the consideration and the seller may have to withhold and deposit 1% TDS.


The proposal regarding taxation of crypto-assets in the budget is a welcome step by the government since it brings about much-needed clarity regarding the tax treatment of profits from crypto trading. However, considering the age demographic involved and the high volumes that the crypto-platforms currently experience it would be a challenge for the government to ensure proper implementation of the provisions while at the same time ensuring that they do not stifle this burgeoning industry.


Vipul Kharbanda is a Non-Resident Fellow and Co-Head of the Fintech Research Agenda at the Centre for Internet and Society, Bangalore. The author would like to thank Aman Nair, Policy Officer and Co-Head of the Fintech Research Agenda at the Centre for Internet and Society, Bangalore, for his inputs while drafting the article.


Suggested citation: Vipul Kharbanda, Addressing the Crypto Question in India: An Analysis of the Union Budget’s Crypto Tax Regime, JURIST- Professional Commentary, February 21, 2022,

This article was prepared for publication by Ananaya Agrawal, JURIST Tech (Beat) Editor. Please direct any questions or comments to her at

Opinions expressed in JURIST Commentary are the sole responsibility of the author and do not necessarily reflect the views of JURIST's editors, staff, donors or the University of Pittsburgh.