India on Tuesday announced plans to launch a digital currency by next year and tax cryptocurrencies and NFTs as the country moves closer to recognizing cryptocurrencies as legal tender in the world’s second largest internet market.
Income from the transfer of any virtual assets will be taxed at 30%, the nation’s finance minister Nirmala Sitharaman said Tuesday. To capture details of all such crypto transactions, she also proposed a 1% tax deduction at source on payments made related to purchase of virtual assets.
“No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of digital asset cannot be set off against any other income,” she said in one of New Delhi’s most remarkable tech and business-focused federal budgets. “Gift of virtual digital asset is also proposed to be taxed at the hand of the recipient.”
The proposal comes at a time when the purchase of cryptocurrencies and NFTs are quickly making inroads in India despite regulatory uncertainty in the nation.
Binance-owned WazirX said last month that yearly trading volume on its platform exceeded $43 billion in 2021, at an “1,735%” growth from 2020.
The new regulations of 30% tax seems to be bad for crypto traders but amazing for Bitcoin maxis
They can put INR in Bitcoin & don’t have to worry about tax as anyway they don’t want to take it back
Like a lottery ticket purchase but you don’t ever want to win & get INR back
— Rajan Bajaj (@rajanbajaj_) February 2, 2022
The growing adoption of crypto tokens has also led to the emergence of a group of startups looking to innovate in the space — though their aggressive marketing campaigns have raised many eyebrows.
Andreessen Horowitz made its maiden investment in India last year by backing cryptocurrency exchange CoinSwitch Kuber.
“The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime,” she said.
India’s central bank will also introduce a digital currency in the next financial year, she said. The nation’s central bank has been testing its CBDC through a number of controlled trials for several months in the country and has been examining its impact on the banking and monetary systems.
“Introduction of a central bank digital currency will give a big boost to digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,” she said. In a press note, New Delhi said its digital currency Central Bank will be treated as bank notes.
A country would have never been so excited about the government introducing a tax on anything! 😀
But personally, as a crypto enthusiast, I am so excited by this move. It will give India a chance to become the Web3 innovation hub in the coming decade. #Crypto #India
— Puneet Kumar (@puneetiitm) February 1, 2022
India’s neighbor China said earlier this month that People’s Bank of China has processed more than 3 million transactions in digital yuan worth over $160 million as part of its CBDC trial. (China, if you remember, also labeled all private cryptocurrency-related transactions in the country as illegal last year.)
India’s proposals today have somewhat created more confusion among entrepreneurs, venture capitalists and the general public alike about how New Delhi plans to tackle cryptocurrencies.
By introducing a tax system for crypto-related transactions, New Delhi appears to be either recognizing such virtual assets as legal tender, or as an investor wondered aloud, “take their pound of flesh from all the action.”
Indian government proposed a new tax policy for Virtual Digital Assets.
– has the government legitimised cryptocurrencies? Or this is a way to take their pound of flesh from all the action?
– Will this push Indian banks to work with crypto startups?
— Osborne Saldanha (@os7borne) February 1, 2022
In a tweet, Randeep Singh Surjewala, the spokesperson for the opposition Congress party, asked: “Ms Finance Minister, please do tell the nation. Is cryptocurrency now legal, without bringing the Cryptocurrency Bill, as you tax the cryptocurrency? What about its regulator? What about regulation of crypto exchanges? What about investor protection?”
Update: New Delhi has clarified that it is currently “collecting inputs for regulation.”
Asked about taxing without regulation, @nsitharaman says “We have circulated a paper, inputs are coming in, public stakeholders are coming in so regulation goes through that process. I don’t wait till regulation comes into place to tax people who are earning profits. Can I?”
— Amitoj Singh (@amitoj) February 1, 2022
“The biggest development today, however, was a clarity on crypto taxation. This will add the much needed recognition to the crypto ecosystem of India. We also hope this development removes any ambiguity for banks, and they can provide financial services to the crypto industry. Overall, it’s good news for us, and we will need to go through the detailed version of the budget to understand the finer details,” said Nischal Shetty, chief executive of WazirX, in a statement.
“The tax clarity is a welcome move. Overall, it’s a huge relief to see that our government is adopting the progressive stance of going ahead in the direction of innovation. By bringing in taxation, the government legitimises the industry to a large extent. The majority of people, especially corporates, who have been sitting on the sidelines because of uncertainties will now be able to participate in crypto.”
New Delhi also pledged to increase the reach of internet and digital banks in rural parts of the country.
Some other notable announcements:
The speech is bigger than crypto, however. If you read it, you get the unmistakable impression that India is more tech savvy than many realize.
Digital universities, drone farms, telemedicine, open source…embraced and understood at the highest levels.https://t.co/Oz1LVjEV6z pic.twitter.com/SuS2KFvm0m
— Balaji Srinivasan (@balajis) February 1, 2022