Budget 2022: Finance Minister Nirmala Sitharaman on Tuesday announced the launch of India's own digital currency by the next year that will be based on Blockchain technology. The Reserve Bank of India (RBI) will introduce digital currency in the next financial year beginning April 2022 to boost the digital economy and efficient currency management. Digital currency will also help in the currency management system, the minister said.
With this, India will join certain countries that have their own central bank digital currency (CBDC) that refers to the virtual form of a fiat currency. She also said Rs 1 lakh crore financial assistance to states will be provided in 2022-23 to catalyse investments.
30% tax on income from cryptocurrency, digital assets
- The Centre on Tuesday proposed a 30 per cent tax on income from transactions in such assets. Also, to bring such assets under the tax net, she proposed a 1 per cent TDS (tax deducted at source) on transactions in such asset classes above a certain threshold.
- Gifts in crypto and digital assets will also be taxed.
- The tax proposals will come into effect from April 1 after the passage of the Union Budget in Parliament.
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What experts have to say
- Experts said the 30 per cent tax levied on income arising from the sale of cryptocurrency is similar to the tax rate on winnings from lottery, game shows, puzzles etc.
- "Creation of a blockchain-based central bank digital currency while bringing virtual digital assets under the tax net at the highest rate of 30 per cent will help reduce speculative play, especially in the cryptocurrency space," Shravan Shetty, MD, Primus Partners- Digital Currency, said. The central currency will help bring the benefit of a digital currency to the economy in a structured framework, Shetty added.
- Harry Parikh, Associate Partner - M&A Tax and Regulatory Services, BDO India, said a nonchalant introduction of taxation on digital currency coupled with a withholding tax on every transaction could give rise to a lot of compliance issues for crypto businesses.
RBI's stand on cryptocurrencies or digital currency
The Reserve Bank of India (RBI) has already been deliberating upon various aspects relating to the central bank digital currency and private crypto currencies. The central bank has been working on modalities for central bank digital currency. However, it has expressed reservations on private cryptocurrencies.
RBI Governor Shaktikanta Das has already said that cryptocurrencies are a very serious concern from the macro-economic and financial stability perspective. CBDCs are presently mostly in the hypothetical stage, with some in proof-of-concept programmes. However, more than 80 per cent of central banks are looking at digital currencies.
Countries' stand on digital currency
China's digital RMB was the first digital currency to be issued by a major economy. On September 27, 2021, Tajikistan announced the creation of a CBDC with the Fantom Foundation, and Nigeria was the first African country to launch its CBDC on October 25.
The Bank of America said in its recent report that a US CBDC would differ from the digital money currently available to the public because it would be a liability of the US Federal Reserve, not a commercial bank, and so would have no credit or liquidity risk.
The US Fed has also published a discussion paper on the benefits and risks of a CBDC. Earlier, the Indian government was slated to introduce new regulations for cryptocurrency during the Winter Session of Parliament, which kicked off on November 29. The session ended without seeing the 'The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021'.
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