What is Crypto Mining? Is crypto mining legal in India? (2024)

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What is Crypto Mining?

India’s tryst with crypto has not been so smooth. The crypto industry has faced multiple regulatory hurdles over the years, and that has led to a lot of confusion about the country’s legal position on this virtual digital asset. This is where we put all those niggling doubts and pressing questions to rest once and for all. With the answers, you will be able to decide better how you want to acquire crypto—via mining or through an exchange. For those who are not tuned in, crypto mining is the process of generating new crypto through the verification of transactions on the blockchain platform.

Is crypto mining legal?

As crypto prices traveled north in 2020, many millennials took to mining—one of the ways of acquiring crypto. Many saw mining as a sure-shot way to generate steady returns. As the interest in crypto evolved into a full-blown crypto rush in subsequent years, mining became highly competitive. In addition, one question often emerged in this scenario: Is crypto mining legal in India?

In India, no regulation or law restricts people from mining Bitcoin or any other crypto. People are, therefore, free to undertake crypto mining if they wish to. The income or profit generated from mining is taxable under the Indian Income Tax Act of 1961.

You don’t need any special permission or permit from Indian authorities to mine crypto. You only need good mining hardware, mining software, a crypto wallet, and an uninterrupted power supply. On this front, India is like other developed countries like the United States, United Kingdom, Canada, and the European Union nations.

While crypto mining is not illegal in India, there are other challenges that you might run into. The nature of operations and resources required to mine crypto is incompatible with the Indian scenario. An uninterrupted electricity supply is needed to power mining rigs to process crypto transactions and block discovery. In addition, the average temperature in India is higher than in many other northern countries, so you will also have to invest in equipment to keep the mining rigs cool. Further, the kind of mining rigs required to mine crypto has to be imported, pushing up the cost further. The average cost of power, too, is pretty high in India. All of this makes mining crypto an unsustainable business venture.

Crypto miners in other countries, especially China and the United States, depend on surplus electricity generated from renewable sources. Such energy is available at a cheaper rate. Besides, since they are colder places, the cost of cooling the rigs is lesser.

Is crypto mining profitable?

Crypto miners get newly minted coins as rewards for the work done. While mining holds promise, significant upfront costs for machinery and software are a dampener, especially for small crypto miners. However, small Bitcoin miners often join mining pools, which help them share computational power and electric bills.

However, crypto miners with the money to make the initial investment can hope to make significant gains by competing for block rewards. Startup capital is important as mining involves solving complex math puzzles and requires high-tech computers such as GPUs and ASICs.

Is Bitcoin mining legal in India?

The legal status of Bitcoin mining in India is the same as mining any other crypto, as discussed in the previous section. However, aspiring individual Bitcoin miners will need to invest in extremely expensive Application-Specific Integrated Chips (ASICs) and deal with an extremely high difficulty rate to make mining profitable.

If that does not deter you, remember to maintain records of all expenses and income generated from mining. You will need, thus, as you have to pay the taxes specified in the Income Tax Act, 1961.

Is Bitcoin legal in India?

There is nothing that makes Bitcoin illegal in India, as there is no clear law or regulation in place to regulate crypto. However, the Government of India does not recognize Bitcoin or any other crypto as legal tender—unlike the governments of countries like El Salvador. This means that crypto cannot serve as a store of value within this jurisdiction.

In its Union Budget for the financial year 2022–23, however, the Government of India instead introduced a tax law that applies to earnings from crypto, which refers to it as a Virtual Digital Asset (VDA). Under this law, any gains from the sale of VDAs are taxed at a flat rate of 30%, irrespective of the period of holding.

Are crypto exchanges legal?

Yes, crypto exchanges that follow the requisite Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations are legal. Legally, exchanges must comply with other regulatory requirements prescribed by Indian authorities.

Additionally, all crypto exchanges operating in India need to deduct 1% TDS on the sale of VDAs to investors who are Indian citizens. The exchange deducts the applicable TDS while crediting money to investors. TDS is applicable from 1 July 2022 on transactions involving more than ₹10,000.

The many processes created for and checks placed on registered crypto exchanges by the Indian government make crypto transactions safe for Indian investors. Our very own CoinSwitch platform is fully KYC-compliant and one of the safest options out there, but to ensure that an exchange is safe to use, it helps to look into their compliance with all of the aforementioned requirements.

Conclusion

Crypto and Bitcoin are certainly not illegal in India, even if there is scope for much more regulatory clarity. This is also true of two of the most popular ways of acquiring Bitcoin—from an exchange and mining. However, despite the current unregulated status of this asset, Indian users do have to comply with tax laws. And so do crypto exchanges and other service providers from the industry.

India has such a vibrant crypto ecosystem that things are changing as we speak. As things evolve, one can only hope that the legal status of crypto will become clearer and any changes will remain favorable to the industry and its investors.

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