India has finally decided to move towards regulating cryptocurrencies, something that was vehemently opposed by the Reserve Bank of India. There are some caveats, however.
While announcing the annual Union Budget for the year 2022-23 on Tuesday, Finance Minister Nirmala Sitharaman said the Reserve Bank of India would introduce a digital currency in the next financial year, starting in April this year, to boost the digital economy.
“Digital currency will also lead to a more efficient and cheaper currency management system. It is therefore proposed to introduce a digital rupee using blockchain and other technologies to be issued by the Reserve Bank of India, starting 2022-23,” Sitharaman said.
By April, India will have its own version of a cryptocurrency which will mirror the physical currency in digital form. The currency, called the digital rupee, will be issued by the central bank in digital form and will be fungible, or interchangeable, with the physical currency.
However, the proposed currency will be different from private virtual currencies or cryptocurrencies that have mushroomed over the last decade. Private virtual currencies do not represent any person’s debt or liabilities as there is no issuer.
They are not money and certainly not currency. The exact regulation governing this proposed currency is yet to be finalized.
However, the minister added that a 30% tax on income from cryptocurrency transactions will be imposed. The Indian government has also proposed a 1% tax deduction at source on transactions in such asset classes above a certain threshold. Gifts in crypto and digital assets will also be taxed, she said.
The tax proposals will come into effect from April 1 after the passage of the Union Budget in Parliament.
However, private crypto players see the imposition of tax as a sign of gaining acceptance in the Indian establishment for cryptocurrencies. They feel a ban is unlikely. Experts point out that a 30% tax levied on income arising from the sale of cryptocurrency is similar to the tax rate on winning a lottery or game show.
But crypto industry observers feel a steep tax may encourage many crypto exchanges to shift their base to other countries.