The Indian government also announced plans to move closer to recognise cryptocurrencies as legal tender. The proposal is synonymous with the United States, Germany and other countries that have provided assent for its citizens to trade digital assets. The digital rupee issued by the Modi government would be issued and controlled by the Reserve Bank of India – a fundamental difference to decentralized cryptocurrencies such as Bitcoin. Digital currencies will lead to a more efficient and cheaper currency management system.
Proposed tax for earnings on any digital assets (cryptocurrencies and NFTs) are expected to be at 30%, as stated by the nation’s finance minister Nirmala Shitaraman. The minister also proposed a 1% tax deduction at source on payments made related to the purchase of digital assets (cost of acquisition). No other deductions in respect of any expenditure or allowance shall be allowed. Loss from digital assets may not be offset against an individual’s other income as well.
India’s tax proposal could not come at a better time. The nation’s purchase of cryptocurrencies and NFTs are rapidly increasing despite regulatory uncertainties by the government. The yearly trading volume on Binance-owned WazirX went upwards of $43 billion in 2021, a 1.7% growth from 2020. The magnitude and frequency of these transactions led to the urgency for the proposal to be made.
Senior government officials have expressed concerns over the nation’s trading of cryptocurrencies far before the inception of the proposal. Prime minister Narendra Modi highlighted cryptocurrency as a way to facilitate money laundering and terrorism financing. There was also the release of a bill aimed at banning citizens from trading digital assets in November 2021, although the bill was never realised.
India’s announcement led to an increase in the value of cryptocurrencies. The country’s stance on the matter signals a way to legitimize the cryptocurrency sector, giving much-needed recognition to the ecosystem in India.