India Imposes 30% Tax on Crypto Profits – Central Bank Digital Currency Expected in 2022

India

India has made two significant announcements regarding the future of digital assets and currencies in the country. As part of a budget meeting on February 1st, it was decided that profits from cryptocurrencies and NFTs would be subject to 30% income tax. Finance Minister Nirmala Sitharaman commented:

“The number of transactions involving virtual digital assets has increased enormously. Given the size and frequency of these transactions, a special tax regime is unavoidable.”

In the pandemic era, the Indian community of crypto investors grew massively, and with it the trading volume on the local Indian exchanges. It has been further fueled by the explosive rise of most cryptocurrencies over the past year. According to industry estimates, 15-20 million crypto investors currently live in India. Their crypto holdings total around $5.37 billion.

Taxes on Digital Assets

Regarding the new tax law, Minister Sitharaman also clarified that losses in cryptocurrencies cannot be offset against other income. There is also a 1% tax on payments for acquiring digital assets. The new tax regime also applies to recipients of donations of cryptocurrencies and other digital assets.

On a positive note, the new rules show the government’s willingness to recognize and accommodate the class of crypto assets. This allays the fears of investors who thought an outright ban on cryptocurrencies was possible. It is likely that the move will encourage greater investor participation in the crypto market and, as a result, greater liquidity.

On the other hand, 30% is the highest single tax in India. That could prove to be a major stumbling block, especially for retail investors.

Nonetheless, Nischal Shetty, head of Binance-owned exchange WazirX, was positive about the move, saying it brings clarity to the country’s crypto regulations.

Central bank digital currency coming this fiscal year

The second announcement was that the Reserve Bank of India (RBI) plans to introduce a digital rupee in the 2022-2023 financial year. “The launch of a central bank digital currency will give a big boost to the digital economy,” Sitharaman said in her speech. “Digital currency will also lead to more efficient and cheaper currency management.”

As recently as November 23, the Indian government had proposed a bill that would have banned all private cryptocurrencies in the country and replaced them with a central bank digital currency. However, this bill on “Cryptocurrency and the Regulation of Official Digital Currencies” was not among the 15 bills put before India’s Parliament on Jan. 31, the Times of India reports . The government reportedly wants to take its time allowing the central bank to test the digital rupee first.

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