This Tuesday (1st), the government of India revealed that it will launch a digital rupee and levy income taxes on cryptocurrency gains, reports the The Hindustan Times.
In her presentation on the 2022 Budget, Finance Minister Nirmala Sitharaman stated that the Reserve Bank of India (or RBI) will introduce a central bank digital currency (or CBDC) in the next fiscal year.
A CBDC is a digital version of a fiat currency (such as the US dollar) issued by a central bank. CBDCs have similarities to stablecoins, but are different from cryptocurrencies like bitcoin (BTC) and ether (ETH) in that they are privately controlled and centralized.
Several countries around the world are doing research on the benefits of having their own CBDCs and China is in advanced stages of implementing its digital yuan.
According to Sitharaman, the introduction of a CBDC “will give a boost to the digital economy”, resulting in “a more efficient and cheaper currency management system”.
The minister added that “blockchain and other technologies” will be used by the RBI to issue the digital rupee. She didn’t give further details.
India introduces crypto taxes
Additionally, India plans to introduce a 30% tax on any income from cryptocurrencies, with no deductions or exemptions.
“No deduction in respect of any expense or pension shall be allowed in computing such income, except for the cost of acquisition,” Sitharaman said.
According to the ministry’s proposal, the donation of “digital and virtual assets will also be taxed in the hands of the recipient” while “damage from the transfer of digital assets cannot be compensated with other income”.
In other words, investors will not be able to show losses that happen due to price drops or hack incidents to offset the taxation of profits.
The industry reaction
Reacting to the news, Nischal Shetty, founder and CEO of local cryptocurrency exchange WazirX, said Tuesday’s announcement brings “clarity” to cryptocurrency taxation and is “another step towards positive crypto regulations.”
However, former Treasury Secretary Subhash Chandra Garg did not spare his judgments on the initiative.
He highlighted the fact that the Indian government plans to levy taxes on cryptocurrencies despite failing to adopt the proposed “Official Bill for Cryptocurrencies and Digital Currency Regulation 2021”.
Included in the legislative agenda for the November 2021 session, this bill aimed to establish a framework for the issuance of the digital rupee while proposing a ban on “all private cryptocurrencies”.
According to Garg, the forthcoming 30% tax on cryptocurrency income could mean the “party is over for crypto assets and exchanges.”
He added that the digital rupee announcement “is more formal”. The RBI has not prepared or tested its model and “there is no evidence” of a law that allows it.
Meanwhile, commenting on the stated use of blockchain technology for the RBI digital currency, Mudit Gupta, blockchain security researcher and Ethereum developer from New Delhi, suggested which will be a new proof of authority (or PoA) blockchain with mandatory “know your customer” (or KYC) requirements.
PoA is a blockchain algorithm that produces comparatively fast transactions through a consensus mechanism based on the identity of users.
“I don’t expect there are still standalone contracts in it [na blockchain] still. Just a Bitcoin-like chain,” Gupta tweeted, adding that strict KYC requirements will make it impossible to launch the digital rupee as a token on the Ethereum blockchain.
*Translated and edited by Daniela Pereira do Nascimento with permission from Decrypt.co.