The rise of digital assets around the world has been nothing but phenomenal in the past few years, and India is no different. As an investor in India who finds their interest piqued by this rapidly growing technology, one question comes to mind: Are crypto wallets allowed under Indian law?. The short answer to that question is yes, it is not illegal to have and use a crypto wallet in India. However, it should be noted that crypto currently exists in a legal grey area in the country, and its legality is being heavily debated by regulators, technologists, and investors. This doesn’t mean it is exempt from taxes.
The Distinction Between Custody Types
There are two main types of crypto wallets, and they fall under different positions in terms of legality.
- Exchange-Hosted Wallets: These are wallets that are hosted by centralized exchanges like CoinDCX or WazirX. They are required to follow reporting requirements on transactions under the Prevention of Money Laundering Act as a “Reporting Entity.” Under this, they are required to use KYC to verify users and report suspicious transactions to the government.
- Self-Custodial Wallets: These are self-hosted wallets like MetaMask(software) or Ledger(Hardware), and they are not prohibited but hard to regulate.
The Regulatory Landscape
Starting from a potential prohibition stance, India has now shifted to a “regulation through taxation” stance as expressed in the Finance Act of 2022. This act includes a 30% Flat Tax on crypto wallets-based profits and a 1% TDS (Tax Deducted at Source) on every transaction. The taxation of these assets is an implicit recognition of their existence and the citizen’s rights to hold and use them.
Disclaimer: BFM Times acts as a source of information for knowledge purposes and does not claim to be a financial advisor. Kindly consult your financial advisor before investing.
