India to introduce digital rupee and tax cryptocurrency earnings
India is going to introduce a digital rupee and a 30 percent tax on income from cryptocurrencies and other digital asset transfers, Finance Minister Nirmala Sitharaman announced in the Budget 2022. The introduction of a central bank digital currency is scheduled for the fiscal year 2022-23.
It aims to “give a big boost to the digital economy,” Sitharaman told parliamentarians in her budget speech.
“Digital currency will also lead to a more efficient and cheaper currency management system,” she said.
The move to tax cryptocurrency transfers is seen as the country's attempt to regulate the industry, as the purchase of cryptocurrencies and NFTs (non-fungible tokens) have been quickly making inroads in India despite regulatory uncertainty, prompting the central bank to voice concerns that it may cause financial instability.
Besides the 30 percent tax, the minister also proposed a 1 percent tax deduction at source on payments related to the purchase of virtual assets to capture details of all crypto transactions.
“No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition,” she said. “Loss from transfer of digital assets cannot be set off against any other income.”
The establishment of a formal tax framework is seen as a step to legalize the crypto market.
“There are lots of speculative activities in cryptocurrencies, where the price goes up and goes down. So, to curb speculation the government is introducing a tax,” Delhi-based economist Prof. Arun Kumar said.
“By taxing the cryptocurrency, the government is in a way legalizing it. I think there is no option because other countries are allowing it.”
Economist Pravakar Sahoo, from the Delhi-based Institute of Economic Growth, also said it was the right move.
“Cryptocurrency is a kind of a capital gain, it has a value and it’s an asset for an individual. Its values go up and down according to the demand. So, it’s a good move to tax the income coming from the digital asset.”
He said placing earnings from digital assets in India's highest tax band was “justifiable.”