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After years of wavering on its stance, India has finally taken a step closer to adopting cryptocurrencies as the country seeks to keep up with the global move toward the digital assets.
The Reserve Bank of India (RBI) will launch its digital currency in this fiscal starting 1 April, Union Finance Minister Nirmala Sitharaman said in her budget speech today.
The country also plans to tax the income from the transfer of virtual assets at 30%, Sitharaman said, effectively removing uncertainties about the legal status of such transactions.
Aside from placing earnings from cryptocurrencies and non-fungible tokens (NFTs) in India's highest tax band, Sitharaman also said losses from their sale could not be offset against other income, delivering another disincentive to trading and investment in digital assets.
Industry estimates suggest there are 15 million to 20 million crypto investors in India, with total crypto holdings of around 400 billion rupees ($5.37 billion). No official data is available on the size of the Indian crypto market.
India joins China in pushing forward with digital currencies
Cash-dependent India now joins nations including China in pushing forward with digital versions of their currencies as they look to harness new technologies to make transactions more efficient.
At the same time, the steep tax rate on crypto could dissuade trades that have been soaring in India despite the central bank’s warnings about the risks of money laundering, terrorist financing and price volatility.
“Imposing the tax rate makes crypto trading official now and any concern of a ban is off the table," said Darshan Bathija, co-founder and chief executive officer of Vauld, a crypto exchange platform based in Singapore. Still, the relatively high tax rate could prompt traders to move to platforms in other countries, which would reduce revenue for the Indian government, he added.
Bitcoin rose over 2%
Bitcoin rose more than 2% from the day’s low following the taxation announcement. So far India doesn’t have any law regulating trading in virtual coins, though it had proposed a ban early last year.
That didn’t stop millions of Indians from jumping on to the wave of global demand for digital assets. The local market surged 641% in the year through June 2021, according to an October report from Chainalysis, an industry research company.
The finance minister said the launch of a digital rupee will usher in cheaper, more efficient currency management. The RBI has been working on a phased implementation strategy, which could reduce the nation’s high dependency on cash.
"The introduction of a central bank digital currency will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system," Sitharaman said.
China already began trials of its central bank digital currency in several cities, and even plans to roll out its digital yuan for use by athletes and spectators at the Beijing Winter Olympics starting this week. The US Federal Reserve and Bank of England are also looking into possibilities for their economies.
Other key points on crypto assets from the budget speech include:
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