Article by Vijay Pal Dalmia, Advocate, Supreme Court of India and Delhi High Court, Partner & Head of Intellectual Property Laws Division, Vaish Associates Advocates, India

Cryptocurrencies have been subjected to the spotlight of the decade and have been grabbing the attention of the tax authorities essentially due to the high prices at which they were seen trading on exchanges in India and across the globe and the regulatory mechanism of taxation has to be determined looking at the current legal landscape.

The Constitution of India under Article 246 grants the power to levy taxes to the Parliament as well as the state legislatures to impose taxes.1 Article 265 provides that no tax can be imposed or collected without the authority of law.2 With the introduction of the Constitution (One Hundred and First Amendment) Act, 2016, the Parliament made several amendments concerning the imposition of Goods and Services Tax ('GST') including Article 246A, wherein exclusive power was given to the Parliament to make laws about interstate trade and commerce.3 Furthermore, Schedule VII lists the subject matters where Parliament and state legislatures can impose taxes.4

Accordingly, any transaction involving cryptocurrency can be analyzed from two viewpoints - income and expenditure. The nature of the transaction nature and parties to the transaction would decide if it may be taxable under the Income Tax Act, 1961, or Central Goods and Services Tax Act, 2017, and other laws.

As it is well established that the regulatory framework regarding cryptocurrencies is uncertain, this article tries to analyze the taxation (or non-taxation) by considering them as both goods and currency, two major approaches currently prevalent across the world.


The treatment of cryptocurrencies under the direct tax regime is mainly governed by the Income Tax Act in India. In the current legal landscape, there is no certainty regarding the taxation of cryptocurrency nor ant disclosure requirement about the income earned issued by the Income Tax Department.

Moving on, if cryptocurrency is considered as 'currency', it would not be susceptible to tax under the IT Act. The first reason being, under the Act, the definition of 'income' is an inclusive one, which comprises not only the 'natural' meaning but also the items mentioned under Sec 2(24) of the IT Act.5 But neither the natural meaning nor Sec 2(24) of the IT Act includes 'money' or 'currency' as income, although it includes 'monetary payment'. Secondly, being a mode of consideration, the tax incidence would be on the transaction and not on the currency. On the other hand, if cryptocurrency is considered as goods/property, then clearly it would be either covered within the charging provision of 'Profit and Gains from Business and Profession'6 or 'Income from Capital Gains'7, depending upon its use for business/profession or not. It would not be out of place to state that the ambit of the word 'income' is not restricted to the words 'profits' and 'gains' and anything which can appropriately be designated as 'income' is liable to be taxed under the IT Act, unless expressly exempted.8

  1. Treatment under the head 'Capital Gains'

Sec 2(14) of the IT Act defines a capital asset as "property of any kind held by the assessee whether or not connected with his business or profession".9  This definition of 'capital asset' provided is widest in itself and covers all kinds of property except those expressly excluded under the Act.10 Therefore, any gains arising out of the transfer of cryptocurrency must be considered as capital gains, if they are held for investment.

  1. Taxability under 'Profit and Gains from Business and Profession'

The tax treatment of cryptocurrencies when held as 'stock in trade' is not the one which faces major difficulties as the issues arising while treating it as capital gains do not arise when such cryptocurrencies are held in furtherance of business activity. Under Sec 2(13) of the IT Act, the definition of 'business' is inclusive, and comprises of "trade, commerce or manufacture or any adventure or concern of such nature."11 Moreover, any continuous activity like trade in cryptocurrencies is included within this definition, and profits realized are taxable thereunder, chargeable under Sec 28 of the IT Act.12

The profits may not necessarily be in the form of money, they are taxable even if they are 'in-kind'. Any expenditure incurred for this purpose, such as the purchase of computing power as a capital asset, should be allowable as a deduction per the provisions specified in Sec 30 to Sec 43D of the IT Act.13


The treatment of cryptocurrency as goods/property implies that the supply of bitcoins is a 'taxable supply' and hence subject to GST. Technically, a supply of cryptocurrency as goods or property in exchange for other virtual/real goods should fall within the ambit of 'barter transaction' since bartering is simply an exchange of one good for another.

Even in its most innovative form, any barter transaction has two essentials -

  1. direct exchange of goods or services for other goods/services and
  2. no use of money.14

Before GST,  under the various state VAT laws, the incidence of tax arose when there was a sale of goods in exchange for cash, deferred payment, or any other valuable consideration.15 The expression 'any other valuable consideration' leaves out a wide scope of ambiguity, since the term should typically derive reference, ejusdem generis, from its preceding terms (i.e. cash and deferred payment),16 and therefore, must not include an exchange of goods for other goods. This view was reiterated by the Supreme Court in the case of Sales Tax Commissioner v. Ram Kumar Agarwal,17 where a transaction of gold bullions in exchange for ornaments was excluded from the definition of sale under Sec 2(h) of the Sale of Goods Act, 1930. However, the position is similar to when a transaction is used as a device to conceal monetary consideration, courts may unravel the device to include it within the ambit of sale.18

An approach where cryptocurrencies are considered as goods means that some transactions would be taxed twice - at first on supply (otherwise exempted for a transaction in money) and secondly on consideration, unnecessarily leading to higher tax. This higher incidence of taxation puts the businesses operating in cryptocurrencies at a huge disadvantage which also diminishes their purchasing capacity. The issue gets further complicated in cases of international transactions.


The crypto in today's scenario has the potential to boost the backbone of India's digital infrastructure and also securing all the transactions made on the digital network. In this situation levying taxes on the transactions involving cryptocurrency should be considered a welcoming move and should not be seen as a restriction. It is a two way street for the crypto transactions to be traced and used legally as well as generating income for the government to be used efficiently. It is also vehemently asserted that employing tax on crypto as a policy matter can help to provide an ideal atmosphere to assure the traders that their money is safe and the risks involved in trading are also mitigated.19


Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court

Email id:
Mobile No.: +91 9810081079
Twitter: @vpdalmia


Kritika Singh
Maharashtra National Law University, Aurangabad


1. Art. 246, The Constitution Of India, 1950.

2. Art. 265, The Constitution Of India, 1950.

3. Art. 246A, The Constitution Of India, 1950.

4. Schedule VII, List I, Union List, Items 82-92B; Schedule VII, List II, State List, Items 46-62.

5. CIT/CWT v. P.R.S. Oberoi, (1990) 183 ITR 103 (Cal.).

6. Sec 28 the Income Tax Act, 1961

7. Sec 45(1)  the Income Tax Act, 1961

8. Maharajkumar Gopal Saran Narain Singh v. CIT, (1935) 3 ITR 237 (Bom.).

9. Sec 2(14) the Income Tax Act, 1961.

10. Commissioner of Income Tax v. B.C. Srinivasa Shetty, (1981) 2 SCC 460.

11. Sec 2(13) the Income Tax Act, 1961.

12. Sec 28 the Income Tax Act, 1961.

13. Sec 30 and Sec 43D the Income Tax Act, 1961.

14.  George Dalton, Barter,  JOURNAL OF ECONOMIC ISSUES (2016) (discussing the essentials and intricacies of barter transactions).

15. Pawan K. Aggarwal, Incidence of Major Indirect Taxes in India, 14-16, 1995, available at pdf

16. Devi Dass Gopal Krishnan v. State of Punjab, (1967) 20 STC 430.

17. Sales Tax Commissioner v. Ram Kumar Agarwal, (1967) 19 STC 400 All; See also M Jaihind v. State of Kerala, (1998) 111 STC 374; CTO v. Kansari Udyog Sahakari Samiti, (1979) 43 STC 176.

18. C Mohammed Ali v. State of Kerala, (2010) 31 VST 427; Dhampur Sugar Mills v. CTO, (2006) 147 STC 57; State of Tamil Nadu v. TMT Drill (P.) Ltd., (1991) 82 STC 59.

19. Such as Anonymity; Tax Evasion and Money Laundering; See - Adrian BlundellWignall. 'The Bitcoin Question: Currency Versus Trust-Less Transfer Technology' (2014) OECD Working Paper on Finance, Insurance, and Private Pensions, No. 37.

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