Finance Minister Nirmala Sitharaman on Tuesday removed uncertainty regarding the future of cryptocurrency in India when she announced that the Reserve Bank of India (RBI) will launch its own digital currency based on blockchain technology by April 1, 2022. This will be India’s first Central Bank Digital Currency (CBDC) project.
The digital rupee will make the transactions more efficient, and the Reserve Bank of India(RBI) will implement it to reduce people’s dependency on cash.
India is now a step closer to becoming one amongst a handful of nations that have made regulations related to digital currency and adopted blockchain technology and integrate it with the economy. It lays emphasis on India’s pre-eminence in digitized finance.
Even the United States of America hasn’t launched their CBC (cipher-block chaining) yet. CBC might help in leveraging the benefits of blockchain technology, faster settlements, and lower operational expenses.
Many stakeholders were expecting the introduction of a tax policy framework and the government bought it under the tax ambit in the Union Budget 2022. Cryptocurrencies are officially recognized and will be taxed at 30%. This is similar to gains from lottery and gambling.
There is no law that is regulating virtual currencies yet. However, millions of investors have already invested lakhs of rupees in cryptocurrencies. There has been a phenomenal increase in transactions in virtual digital assets which led the government into making a specific tax regime.
The digital Rupee will be completely regulated and monitored by the central government. CBDCs have the full faith and backing of the issuing authority. Just as it is for regular notes and coins, RBI will remain the guarantor of the Digital Rupee.
The finance ministry has proposed that:
- There will be a 30% tax on the exchange of all virtual assets, including cryptocurrencies and non-fungible tokens.
- Deduction in respect of any expenditure or allowance shall not be allowed while computing such income except the cost of acquisition.
- Loss incurred from the transfer of virtual digital assets cannot be set off against any other income.
- TDS on payment made in relation to the transfer of virtual digital assets at the rate of 1% of such consideration above a monetary threshold has been proposed.
- The gift of virtual digital assets will be taxed in the hands of the recipient.
This makes it clear that cryptocurrencies will not be banned in the near future. It indicates that the government might disallow private crypto as a legal tender and provide citizens with a fiat alternative.
This move has made investors optimistic about their investments. Many investors do not mind a 30% tax on cryptocurrencies, even if is high because they are relieved that it is not getting banned.
