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The government of India revealed on Tuesday that it would be launching a digital rupee and start taxing income from crypto, The Hindustan Times reported.
In her Budget 2022 presentation, Indian finance minister Nirmala Sitharaman said that the Reserve Bank of India (RBI) will introduce a central bank digital currency (CBDC) in the next financial year.
A CBDC is a digital version of a fiat currency (like the U.S. dollar) issued by a central bank. CBDCs have some similarities to stablecoins, however, are different to cryptocurrencies like Bitcoin and Ethereum since they are privately controlled and centralized.
Several countries around the world are currently researching the benefits of having their own CBDCs, with China being in the advanced stages of implementing its digital yuan.
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According to Sitharaman, the introduction of a CBDC “will give a boost to the digital economy,” leading to “a more efficient and cheaper currency management system.”
The minister added that the “blockchain and other technologies” will be used by the RBI to issue the digital rupee. She did not specify further details.
Additionally, India plans to introduce a 30% tax on any income made on cryptocurrencies, with no deductions or exemptions.
“No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition,” said Sitharaman.
Per the minister’s proposal, the gifting “of virtual digital asset is also to be taxed at the hand of the recipient” while “loss from transfer of digital asset cannot be set off against any other income.”
In other words, investors won’t be able to show losses occurred due to price drops or hacking incidents to offset taxation on profits.
Industry reacts
Reacting to the news, Nischal Shetty, founder and CEO of local crypto exchange WazirX stated that today’s announcement brings “clarity” on crypto taxation and is “yet another step towards positive crypto regulations.”
Former finance secretary Subhash Chandra Garg was, however, reserved in his judgment of the initiative.
He pointed to the fact that the Indian government plans to tax crypto despite failing to adopt the proposed “Cryptocurrency and Regulation of Official Digital Currency Bill 2021.”
Included in the legislative agenda for the winter session in November last year, that bill sought to establish a framework for issuance of the digital rupee, while also proposing to prohibit “all private cryptocurrencies.”
According to Garg, the proposed 30% tax on crypto income would mean that the “party [will] be over for crypto assets and exchanges.”
He added that the digital rupee announcement “is more formal.” The RBI has neither prepared nor tested its model, and there’s “no indication” of enabling the law.
Meanwhile, commenting on the stated use of blockchain technology for the RBI’s digital currency, Mudit Gupta, a New Delhi-based blockchain security researcher and Ethereum developer, suggested that it will be a new proof-of-authority (PoA) blockchain with mandatory KYC.
PoA is a blockchain algorithm delivering comparatively fast transactions through a consensus mechanism based on users’ identity.
“I don't expect there to be smart contracts on it yet. Just a Bitcoin-like chain,” wrote Gupta, adding that strict KYC requirements will make it impossible to launch the digital rupee as a token on the Ethereum blockchain.
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