Can they tax something which is not legal? How can a country tax something which is not legal? Moreover they still have plans of banning crypto since they are not clear about their stands on legalization. Not sure if it's an attempt to unofficially break the crypto market in India or what's going on.
The legality of Bitcoin is discussed for a long time here in this forum and you could find many threads talking about the ban unban and many more theories about how India is going to deal with the entire cryptocurrency market. I am not sure about the volume of investors in the space from India but taxing them means it is legal in India and years long rumors of banning bitcoin and cryptocurrency are false.
If the government were planning to ban the entire market, i am sure they will not add them in the tax bracket.