After years of uncertainty, India took a step closer to accepting cryptocurrencies as the country seeks to keep up with the global move towards digital assets.
The Reserve Bank of India (RBI) is expected to launch its digital currency this fiscal year starting April 1, Nirmala Sitharaman, Finance Minister, said in her budget speech on February 01, 2022. The nation also plans to tax the income from the transfer of virtual assets at 30 percent, effectively removing doubts about the legal status of such transactions.
India joins countries, including China, in pushing digital versions of their currencies to harness new technologies to make transactions more efficient. Though, the steep tax rate on crypto could avert trades that have been skyrocketing in India despite the central bank’s warnings about the risks of terrorist financing, money laundering, and price volatility.
“Imposing the tax rate makes crypto trading official now and any concern of a ban is off the table,” said Mr. Darshan Bathija, CEO and co-founder of Vauld, a crypto exchange platform based in Singapore, in an interview with Bloomberg. Although the relatively high tax rate could make the traders move to platforms in other countries, that would, in turn, reduce revenue for the Indian government, he added.
Bitcoin price surged by more than 2 percent after the taxation announcement. India did not have any law regulating trading in digital coins until now; however, it had proposed a ban early last year. That did not 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 a report from Chainalysis, an industry research firm.
“There’s been a phenomenal increase in transaction in virtual digital assets,” Ms. Sitharaman said. “The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.”
The finance minister said the launch of a digital rupee would usher in cheaper, more efficient currency management. RBI has been working on a phased implementation strategy, which could reduce the nation’s high dependency on physical currency.
China has already begun trials of its central bank digital currency (CBDC) in several cities and plans to roll out its digital currency for spectators and athletes at the Beijing Winter Olympics starting this week. The Bank of England and the United States Federal Reserve are also looking into possibilities for their economies.
