India increases taxation on cryptocurrencies


In a move that is perhaps a bit of a surprise, India has announced that it will subject all income from cryptocurrency transfers to the 30% tax rate, the highest in the Indian tax regime

Cryptocurrency taxation in India

This is at least what the country’s finance minister Nirmala Sitharaman has declared in recent days, during a press conference held on Indian budget approval. At the same moment, with a timing that appeared a bit suspicious, he also stated that surely by 2023 the project for a digital rupee will be ready.

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“There has been a phenomenal increase in transactions of virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime”,

said Sitharaman.

In fact, these words of the minister are confirmed by a recent survey by research and analytics firm Chainalysis, which talks about a real cryptocurrency boom in the country in 2021. About 15 million Indians would have invested in cryptocurrencies. The value of digital assets would have increased from about $900 million in 2020 to over $6 billion in 2021, an increase of 623%.

This then is where the government’s move could be an easy way to get substantial additional revenue, but at the same time it could also be a disincentive towards investing in digital currencies, as Ritesh Kumar, partner at IndusLaw, one of the country’s leading legal firms, argued to Business Insider newspaper:

“The 30% rate of tax and restriction to set-off losses is a very bold move in discouraging transactions in crypto”.

Crypto regulation in India

But according to other analysts, this would be great news for the cryptocurrency market, which sees any attempt at regulation as a sort of imprimatur to their acceptance by the authorities. Sumit Gupta, co-founder and CEO of one of India’s largest cryptocurrency exchanges, CoinDCX, tweeted immediately after the minister’s words that : 

“Taxation of Virtual Digital Assets or #crypto is a step in the right direction. It gives a lot of clarity. India’s focus on digital innovation and promotion of blockchain is welcome. The details need to be studied to comment further. But it’s great news for crypto investors in India”.

The measure is expected to cover not only trading but also the NFT market, which is growing tremendously in the country, and all activities closely related to cryptocurrencies, such as mining. The new tax regime should be operative from April this year, according to what has been leaked by the Ministry of Finance.

India cryptocurrencies
15 million Indians have invested in cryptocurrencies

New Indian CBDC

India’s finance minister also spoke during the press conference about the new project of a state digital currency, which will be managed by the Reserve Bank of India (RBI). In the post-budget press conference, the minister explained how this new CBDC will be treated as a real currency, and therefore clearly will not be subject to the tax regime provided for cryptocurrencies.

Then again, for some time now the Reserve Bank of India itself, would be among those in the country pushing for a ban on all cryptocurrencies. In 2018, the same bank had decided for a ban on digital currencies, but in 2020, the Supreme Court had overturned the measure, due to its unconstitutionality.

And now here comes the news from the ministry that by March 2023, the Reserve Bank of India is expected to launch the new digital rupee.

 





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