India finally warms to crypto with tax, digital rupee

The Reserve Bank of India will launch its digital currency in the year starting April 1. PHOTO: REUTERS

MUMBAI (BLOOMBERG) - India took a step closer to adopting cryptocurrencies after years of wavering on its stance, as the country seeks to keep up with the global move towards the digital assets.

The Reserve Bank of India will launch its digital currency in the year starting April 1, Finance Minister Nirmala Sitharaman said in her budget speech on Tuesday (Feb 1). The nation also plans to tax the income from the transfer of virtual assets at 30 per cent, she said, effectively removing uncertainties about the legal status of such transactions.

Cash-dependent India joins countries including China in pushing forward with digital versions of their currencies as they look to harness new technologies to make transactions more efficient. At the same time, the steep tax rate on crypto could dissuade trades that have been soaring in India despite the central bank's warnings about the risks of money laundering, terrorist financing and price volatility.

"Imposing the tax rate makes crypto trading official now and any concern of a ban is off the table," said Mr Darshan Bathija, co-founder and chief executive of Vauld, a crypto exchange platform based in Singapore. Still, the relatively high tax rate could prompt traders to move to platforms in other countries, which would reduce revenue for the Indian government, he added.

Bitcoin rose more than 2 per cent from the day's low following the taxation announcement. So far India does not have any law regulating trading in virtual coins, though it had proposed a ban early last year. That did not stop millions of Indians from jumping on to the wave of global demand for digital assets. The local market surged 641 per cent in the year through June 2021, according to an October report from Chainalysis, an industry research firm.

"There's been a phenomenal increase in transaction in virtual digital assets," Ms Sitharaman said. "The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime."

The Finance Minister said the launch of a digital rupee will usher in cheaper, more efficient currency management. The Reserve Bank of India has been working on a phased implementation strategy, which could reduce the nation's high dependency on cash.

China already began trials of its central bank digital currency in several cities, and even plans to roll out its digital yuan for use by athletes and spectators at the Beijing Winter Olympics starting this week. The United States Federal Reserve and Bank of England are also looking into possibilities for their economies.

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