The introduction of the 2022 budget by Union Finance Minister of India Nirmala Sitharaman on the 1st of February ended many uncertainties pertaining the future of cryptocurrency in the country. There is no official law regulating virtual currencies- Despite this, millions of Indians have already invested lakhs of rupees in the digital currency.
The government announced that the income from the transfer of all virtual assets will now be taxed at 30% and 1% of tax will be deducted at the source (TDS), in addition to this The Reserve Bank of India will be releasing its own digital currency on April 1st. What can we expect from here on?
The Indian Digital Currency.
The Central Bank Digital Currency (CBDC) is a digital form of fiat currency that can be transacted using wallets backed by the blockchain and is regulated by the central bank (RBI). CBDC is different from decentralised virtual currencies and crypto assets, which are not issued by the state and lack the 'legal tender' status. It enables the user to conduct both domestic and cross-border transactions which do not require a third party or a bank.
This has many large-scale implications for the overall materialization of digital financial ambitions in the country as India will be among the select few of countries that have their own blockchain currency. The motive behind national blockchain currencies is so that there are no decentralized currencies that are outside of the control of the government and hence cannot be misused for financing terrorism or illegal trade.
Now, with the tax rate of 30 per cent levied, crypto is recognised and investors will be paying taxes on the income arising from the sale of the digital assets.
What does India define as crypto-currency?
In the memorandum to the Finance Bill 2022, the government proposed a definition for virtual digital assets “proposed to mean any information or code or number or token (being Indian currency or any foreign currency), generated through cryptographic means or otherwise, providing a digital representation of value.” This means that all cryptocurrencies, whether they are bitcoins- so called alt-coins like Dogecoin and private cryptocurrencies where transactions are concealed are included. Non- fungible tokens or any other tokens of similar nature are included in the definition.
The Adversity.
While more details on this are awaited, crypto community and market experts in the country think this move will significantly hit crypto trading activities. Many have requested the government to re-think this decision as it will impact trading adversely. According to Sharat Chandra, VP- Research and Strategy, EarthID, a self-sovereign Identity Management Platform, in the absence of clear guidelines on how to implement TDS, the 1% TDS rule on transfer of virtual digital assets is going to be a compliance nightmare for both investors as well as centralized exchanges.
Overall, the prospect of cryptocurrency in India seems be ambiguous as of now. India is a great market and the Government of India seems to be ready to formulate a system for regulating cryptocurrency as part of the Indian economy. The fortune of crypto market in India can only be determined by the Cryptocurrency Bill that is yet to be introduced. With so many companies and investors already dealing with and trading in cryptocurrency and the countless opportunities still remaining to be explored, little help and support from the government can turn cryptocurrency into a major asset for the Indian market in the coming future.
~ Preetha Mukherjee
Sources: The Financial Times, TOI, HT, Indian Express
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