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 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.
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.”
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.”
“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: