- India announced Tuesday its plans to launch a digital currency next year and tax cryptocurrencies and non-fungible tokens to legalize cryptocurrencies in the world’s second-largest internet market.
- The income generated by the transfer of virtual assets would be taxed at 30%, India’s finance minister Nirmala Sitharaman declared Tuesday.
- Additionally, India’s central bank would develop a digital currency in the coming fiscal year.
Next year, India revealed Tuesday’s intentions to create a digital currency and tax cryptocurrencies and non-fungible tokens, bringing the country closer to legalizing cryptocurrencies in the world’s second-largest internet market. Income derived from the transfer of virtual assets would be taxed at 30%, India’s finance minister Nirmala Sitharaman announced Tuesday. To track all such cryptocurrency transactions, she also recommended a 1% tax deduction at source on payments made in connection with the acquisition of virtual assets.
In one of the most remarkable federal budgets focused on technology and business in New Delhi, she stated that “No deduction for any expenditure or allowance shall be allowed in computing such income except for the cost of acquisition.” Additionally, any loss resulting from the transfer of a digital asset cannot be offset against any other revenue. Additionally, it is recommended that gifts of virtual digital assets be taxed at the recipient’s expense.
India’s take on Digital Currencies
The proposal comes when the purchase of cryptocurrencies and NFTs is rapidly gaining traction in India, despite the country’s regulatory uncertainty. WazirX, which Binance owns, announced last month that annual trading volume on its platform would top $43 billion in 2021, or a “1,735 percent” increase over 2020.
The increased use of crypto tokens has also resulted in several entrepreneurs trying to innovate in the field — but with some eyebrows raised by their aggressive marketing strategies. Andreessen Horowitz made its first investment in India last year by acquiring CoinSwitch Kuber, a cryptocurrency exchange. According to her, the scale and frequency of these transactions necessitate the establishment of a distinct tax structure.
Launching of India’s digital currency:
India’s central bank will also launch a digital currency in the coming fiscal year. For some months, the country’s central bank has been conducting controlled experiments to assess the CBDC’s impact on the banking and monetary systems.
Establishing a central bank-issued digital currency will significantly strengthen the digital economy. Additionally, she stated that digital money would result in a more efficient and cost-effective currency management system. New Delhi said in a press release that the Central Bank’s digital money would be considered banknotes.
Earlier this month, China, India’s neighbor, announced that the People’s Bank of China had handled over 3 million digital yuan transactions worth more than $160 million as part of its CBDC pilot. (China, if you recall, also declared all private cryptocurrency transactions illegal in the nation last year.)
India’s recommendations today have added to the uncertainty among entrepreneurs, venture capitalists, and members of the general public about how New Delhi intends to address cryptocurrency. By instituting a tax on cryptocurrency transactions, New Delhi either recognizes such virtual assets as legal cash or, as one investor speculated, extracts their pound of flesh from the activity.
Randeep Singh Surjewala, the Congress party’s spokesperson, said in a tweet: “Ms. Finance Minister, pls do inform the country.” Is bitcoin currently legal, without the introduction of the Cryptocurrency Bill, as long as you tax it? What about its overseer? What about cryptocurrency exchange regulation? How about protection for investors?” New Delhi added that it is presently gathering feedback for regulatory purposes.
Nischal Shetty, chief executive officer of WazirX, stated that the most significant breakthrough today was clarification on cryptocurrency taxes. This will bring much-needed recognition to India’s crypto ecosystem. Additionally, they expect that this development eliminates any uncertainty for banks, allowing them to continue providing financial services to the cryptocurrency business. In general, this is positive news for them; however, they will need to read the complete version of the budget to grasp the more nuanced aspects.
He continued, “The tax clarity is a great step.” Overall, it’s a huge relief to see our government taking a progressive stance toward innovation. By imposing taxes, the government effectively legitimizes the enterprise. The majority of people, particularly corporates, who have been avoiding Crypto due to uncertainty will now be able to participate. New Delhi has committed to expanding the reach of the internet and digital banking in the country’s rural areas.