India announced plans to introduce a digital currency next year and tax cryptocurrencies and non-ferrous tokens on Tuesday, as the world’s second-largest internet market draws closer to recognizing cryptocurrencies as legal tender.
The income from the exchange of any virtual assets will be taxed at 30%, according to Nirmala Sitharaman, the state’s finance minister. She also advocated a 1% tax deduction at source on payments made relating to the purchase of virtual assets to record data of all such crypto transactions.
“With the exception of the acquisition cost, no deduction in relation to any expenditure or allowance shall be permitted in computing such income.” Furthermore, any loss from the transfer of a digital asset cannot be offset against any other income,” she stated in one of New Delhi’s most notable federal budgets centered on technology and industry. “It is also proposed that transfers of virtual digital assets be taxed at the recipient’s hands.”
Despite regulatory ambiguity, the idea comes at a time when the buying of cryptocurrencies and NFTs is swiftly gaining traction in India.
WazirX, which is owned by Binance, announced last month that yearly trade volume on its platform hit $43 billion in 2021, an increase of “1,735%” from 2020.
With the growing popularity of crypto tokens, a number of enterprises has emerged to innovate in the field, however, their aggressive marketing tactics have raised some eyebrows.
Last year, Andreessen Horowitz made its first investment in India, financing CoinSwitch Kuber, a cryptocurrency exchange.
“The size and regularity of these transactions required the creation of a specific tax regime,” she explained.
She also stated that India’s central bank will launch a digital currency in the coming fiscal year. For some months, the country’s central bank has been putting the CBDC through a series of controlled trials around the country, studying its influence on the banking and monetary systems.
“The launch of a central bank digital currency will give the digital economy a significant boost.” She also stated that “digital currency will lead to a more cost-effective currency management system.” New Delhi said in a press release that its digital currency Central Bank will be considered like banknotes.
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“India’s neighbor China said earlier this month that as part of its CBDC pilot, the People’s Bank of China completed more than 3 million digital yuan transactions totaling more than $160 million. (Last year, China declared all private cryptocurrency-related transactions in the country to be unlawful.)
India’s initiatives have added to the confusion among entrepreneurs, venture investors, and the public about how the country intends to deal with cryptocurrencies.
New Delhi appears to be either recognizing virtual assets as legal cash or, as one investor speculated, “taking their pound of flesh from all the action” by instituting a tax regime for crypto-related transactions.
“However, the most significant event today was a clarification on crypto taxes.” This would provide much-needed recognition to India’s crypto sector. We also hope that this development clears up any misunderstanding for banks, allowing them to offer financial services to the cryptocurrency business. Overall, it’s fantastic news for us, and we’ll need to read the entire version of the budget to comprehend the finer points,” – WazirX CEO Nischal Shetty said in a statement.
“The tax transparency is a positive step. Overall, it’s reassuring to see that our administration is taking the progressive stance of pushing forward with innovation. The government legitimizes the sector to a considerable extent by imposing taxes. The bulk of people, particularly corporations, who have been hesitant to join in crypto due to uncertainty will now be allowed to do so.”
New Delhi also promised to expand the use of the internet and digital banks in rural areas.