Is Accepting Crypto Payments Legal in India?
Nov 21, 2024
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5
minutes
With India emerging as one of the world’s fastest-growing markets for cryptocurrency, many businesses are exploring the possibility of accepting crypto payments. However, questions about legality remain central to these considerations. This blog breaks down the legal status of crypto payments in India and what businesses need to know.
Table of contents:
The Current Legal Landscape of Cryptocurrency in India
In India, cryptocurrencies are neither officially recognized as legal tender nor explicitly banned. Instead, they exist in a regulatory grey area. The Reserve Bank of India (RBI) and government agencies have issued statements clarifying that while cryptocurrencies are not banned, they are also not recognized as “currency” within India’s financial system.
RBI’s Stance: In 2018, the RBI prohibited banks from providing services related to cryptocurrencies. However, in 2020, the Supreme Court of India overturned this decision, enabling banks to serve crypto businesses.
Legal Tender vs. Acceptable Payment Method: While cryptocurrencies are not recognized as legal tender, businesses are allowed to accept them as payment for goods and services within the country. This means a business providing goods or services domestically to local customers can accept payments in cryptocurrency. However, when it comes to international transactions—such as exporting or importing goods or services—settling payments in cryptocurrency is not permitted. These transactions fall under the scope of FEMA (Foreign Exchange Management Act) rules, which mandate that all foreign exchange transactions must be processed through an Authorized Dealer (AD) bank.
Key Regulatory Bodies Governing Crypto in India
The regulatory landscape for crypto payments involves multiple authorities, each playing a role in shaping the guidelines and compliance standards for digital assets in India:
Reserve Bank of India (RBI): The RBI remains cautious about the impact of cryptocurrencies on financial stability and consumer protection but does not currently regulate individual crypto transactions for businesses.
Ministry of Finance: This ministry is actively working on a comprehensive regulatory framework. Recent reports indicate that the ministry may treat crypto assets as “securities,” which would bring them under the purview of the Securities and Exchange Board of India (SEBI).
Income Tax Department: Crypto transactions are taxable. Individuals and businesses accepting crypto must disclose income from such transactions and pay taxes accordingly.
Tax Implications for Accepting Crypto Payments
In India, there is no additional tax simply for accepting crypto payments. However, specific tax requirements apply when converting crypto into Indian Rupees or if there is a gain in the crypto’s value during the holding period.
Conversion Tax (TDS): A 1% Tax Deducted at Source (TDS) applies when converting crypto to INR. This TDS helps track crypto transactions and is deducted at the point of conversion.
Capital Gains Tax: If your business holds crypto and its value appreciates, a 30% tax on capital gains applies to any profit realized at the time of conversion or sale. This tax is the same as that applied to individual crypto gains.
Standard GST and Income Tax: For goods or services sold with crypto as payment, GST, Income Tax, and other applicable taxes are calculated as they would be for any other mode of payment, with no extra tax burden for using crypto.
By keeping detailed records and ensuring timely reporting, businesses can manage these tax requirements efficiently while taking advantage of crypto’s benefits.
International Payments and Foreign Exchange Regulations
One crucial consideration for Indian businesses is the Foreign Exchange Management Act (FEMA). Under FEMA, crypto transactions with overseas clients may be subject to foreign exchange regulations, which require businesses to declare and manage these funds in line with India’s guidelines on remittances and foreign exchange.
Businesses engaged in cross-border crypto payments should consult a financial expert or legal advisor to ensure compliance with FEMA guidelines.
Future Regulations and Prospects
The Indian government is currently drafting the Cryptocurrency and Regulation of Official Digital Currency Bill, which is expected to establish a comprehensive framework for digital assets. As of now, there is no timeline for its introduction in Parliament, but the government has expressed interest in a regulatory approach rather than an outright ban.
In addition, the Reserve Bank of India is actively testing a Central Bank Digital Currency (CBDC), which could influence future regulations on private cryptocurrencies.
Practical Considerations for Businesses
For businesses looking to accept crypto payments, here are some key points to keep in mind:
Disclosure and Reporting: Crypto transactions should be fully disclosed in your financial records and reported for tax purposes.
Pricing and Conversion: Since crypto is not recognized as legal tender, businesses may need to handle conversions to INR for accounting purposes.
Compliance with KYC/AML: Businesses must comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols when accepting crypto, especially for larger transactions.
Key Takeaways
The current regulatory environment allows Indian businesses to accept crypto payments under specific conditions:
Legal Status: Cryptocurrencies are not banned but are also not recognized as legal tender in India.
Tax Compliance: Businesses must pay a 30% tax on crypto gains and a 1% TDS on applicable transactions.
Regulatory Caution: Compliance with FEMA guidelines is essential for cross-border transactions, and businesses should stay updated on new legislation.
Conclusion
Accepting cryptocurrency payments in India is feasible for businesses willing to navigate the existing regulatory framework. As the government works toward clear regulations, businesses that adopt crypto payments now may gain a competitive advantage in an evolving digital landscape. With careful compliance and reporting, companies can leverage the benefits of crypto payments while adhering to India’s legal standards.
Crypto payment platforms such as Tylt provide a host of solutions and interfaces to merchants and businesses to accept and handle crypto payments from their customers. These solutions include API integrations, no-code options such as QR codes, payment forms, payment buttons, and crypto point-of-sale (POS) terminals.
Are you ready to explore crypto payments?
Contact us today to learn how Tylt can help you accept crypto securely and legally in India.
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