2024 sees favorable rulings for digital assets in India

Getting your Trinity Audio player ready...

The year 2024 saw some landmark judgments and high-profile support in favor of India’s digital assets industry, although punishing taxation remains an area of concern.

An Income Tax Appellate Tribunal (ITAT) classified gains from the sale of digital currencies like BTC before April 2022 as taxable under capital gains. This is a landmark judgment because the ruling provides clarity on the tax treatment of digital assets. Earlier, digital asset traders had no clear guidance on whether profits should be reported as capital gains or under the head of “income from other sources.”

The ruling is also important as it sets the precedence that the sale of digital assets, especially those made before April 2022, should be treated as a sale of capital assets. It provides clarity to a taxpayer on legitimate tax planning. However, whether it’s a long-term or short-term capital gain, any digital asset profit made from April 2022 onwards is taxed at a flat rate of 30%.

“The ITAT’s ruling is a significant step in bringing clarity to crypto taxation in India. By recognizing crypto as capital assets, it provides much-needed relief for investors who sold crypto before 2022, allowing them to benefit from long-term capital gains tax rates,” Edul Patel, co-founder of Mudrex digital asset investment platform, said in an emailed statement.

“For the industry, it’s a clear signal that regulatory frameworks are maturing, paving the way for a more structured ecosystem. The ruling also paves the way for future crypto taxation reforms, potentially introducing a distinction between long-term and short-term gains from crypto investments,” Patel added.

India imposed one of the harshest taxation on digital asset trading in 2022—30% flat tax on all digital currency income with no provision to offset losses and a 1% tax deducted at source (TDS) on all transactions above Rs 10,000 ($118). This may likely lead to a loss of about $1.2 trillion in trade volume on domestic exchanges over the years, a study from Esya Centre, an Indian policy think tank, claimed.

Indian High Court rules in favor of digital assets

The year 2024 also saw an Indian High Court ruling that mere digital asset dealings are not illegal or an offense under local law.

An Orissa High Court order granted bail to two people accused of allegedly running a Ponzi scheme and duping investors through a fake digital asset company. The court held that digital assets are not ‘money’ under India’s PCMCS Act (The Prize Chits and Money Circulation Schemes (Banning) Act).

“Cryptocurrency is not money within the meaning of Prize Chits and Money Circulation Schemes (Banning) Act and the investment made by the general public in cryptocurrency cannot partake the nature of deposit within the meaning of OPID Act (Odisha Protection of Interests of Depositors Act),” Justice Sasikhanta Mishra observed. 

The ruling is being hailed as progressive as traders celebrate more freedom for everyone investing in digital assets in India.

More high-profile support for digital assets

The year 2024 also saw a lot of high-profile supporters speaking in favor of digital assets in India. Uday Kotak, the founder of India’s third-largest private bank, Kotak Mahindra, labeled digital currency as an “alternate market currency” and a necessary counter hedge for governments worldwide who misbehave and are irresponsible on the fiscal or monetary side over long periods.

“Investors are focused on protecting their [own] value. Gold has kept its value over generations, and therefore, we have to be clear in terms of policymaking and regulations that the saver and investor [are] not concerned about capital formation. The saver and investor [are] concerned about only his or her own capital and how that is protected from vagaries of inflation, poor economic policies, and protection for its future,” Kotak pointed out in March.

Simultaneously, India’s securities and commodity markets regulator suggested that more than one regulator should monitor digital asset trading in the country. The Securities and Exchange Board of India (Sebi) suggested that multiple regulators should monitor digital assets-linked activities instead of a single supervisor. Sebi said it could oversee initial coin offerings (ICOs), manage digital assets classified as securities, as well as issue licenses for equity-market related products, while the Reserve Bank of India could administer digital assets backed by fiat currencies. 

In March, Madhabi Puri Buch, Sebi’s chairperson, announced plans to introduce faster trade settlements to compete with digital currency. Settlements refer to the final stage of payment and completion of a securities trade transaction.

“If our well-regulated market cannot compete with the crypto world and cannot say we also offer you tokenization and instantaneous settlement over the medium term, I won’t even say long term, you should expect investors to move,” Buch had said.

“Everybody wants instant everything. Right? So why should anyone believe that tomorrow if an alternative is available with instant settlement tokenization and they say the regulated market doesn’t offer it, you should expect people to move.”

No timeline for comprehensive regulatory guidelines 

Like all its global counterparts, India is looking to regulate the digital assets space. However, in December, the country informed that there is no fixed timeline for introducing comprehensive regulatory guidelines for the Virtual Digital Assets (VDAs).

“Virtual Digital Assets (VDAs) are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any comprehensive regulatory framework on the subject can be effective only with significant international collaboration on evaluation of the risks and benefits and evaluation of common taxonomy and standards,” Pankaj Chaudhary, minister of state in the Ministry of Finance, said in Lok Sabha, the lower house of the Parliament. 

Finance Minister Nirmala Sitharaman said in March that ‘cryptocurrencies’ cannot be a legal currency in India; they are simply assets for trading and speculation. So far, India has welcomed a joint report by the Financial Stability Board (FSB) and the International Monetary Fund (IMF), which outlined a comprehensive policy and regulatory response to crypto-asset activities. 

“All jurisdictions, including India, are expected to evaluate their country-specific characteristics and risks, and engage with standard-setting bodies and the G20 to appropriately consider any necessary measures for crypto assets. A part of such a process may involve the publication of a Discussion Paper to obtain feedback on the stance or various stances under consideration by jurisdictions,” Chaudhary pointed out. 

“However, there is no specific timeline for any step in the process, including the publication of the Discussion Paper, as it may only be published after such stance or stances are determined based on the evaluated risks,” Chaudhary added.

Digital asset exchanges in India, on their part, have been increasingly complying with new regulatory demands as the nation’s strong economic growth and commitment to emerging technologies continue to lure investors and corporations.

Watch: India posed to become leaders in Web3