In a first for the sub-continent, Indian Finance Minister, Nirmala Sitharaman, announced a 30% tax on any income from the transfer of virtual digital assets, a term widely used to describe cryptocurrencies.

The minister also added that the digital rupee will most likely be issued in 2022- 23. This is the first time the Indian government has set a time frame for the launch of a central bank digital currency (CBDC).

In the Indian budget speech, Sitharaman stated:

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

Sitharaman further added that a “digital rupee” will be “issued using blockchain and other technologies; to be issued by RBI starting 2022-23. This will give a big boost to the economy.”

When asked regarding taxation of crypto transactions without regulation, the finance minister stated:

We have circulated a paper, inputs are coming in, public stakeholders are coming in so regulation goes through that process. I don’t wait till regulation comes into place taxing people who are earning profits. Can I?

Is India Legalizing Cryptocurrencies?

Throughout the budget speech, the finance minister used the phrase “virtual digital asset,” a term widely used by the industry for cryptocurrencies and non-fungible tokens (NFTs). However, the current steps being taken by the government do not declare crypto as legal. Yet, the industry views the move as a step towards granting legitimacy to cryptocurrencies.

Co-Founder and CEO of one of India’s largest crypto exchanges, WazirX, Nischal Shetty stated “India is finally on the path to legitimizing the crypto sector in India.”

Shetty also said that the move to launch a blockchain-powered digital rupee is “phenomenal” and will “pave the way for crypto adoption.” Shetty further commented that the biggest development was the “clarity on crypto taxation, which will add the much-needed recognition to the crypto ecosystem of India.”

Sumit Gupta, co-founder, and CEO of CoinDCX, another of India’s largest cryptocurrency exchanges, commented that the budget was “forward-looking and inspirational” and that taxation of crypto transfers was a step in the right direction.

While, Sidharth Sogani, founder and CEO of cryptocurrency research organization, Crebaco, commented:

You can’t tax something illegal. Hence, this is a very positive move by the government and is very good for the industry. If there are tax clarities in this space, more money is likely to come in.

Tax May be Too High

Some industry experts are concerned that the 30% tax could discourage retail investors. Speaking to Coin Desk, an anonymous source commented, “There might be movement in people liquidating their crypto portfolios and moving to the equity market. The 30% tax is too much.”

In contrast, Shivam Thakral, CEO of BuyUcoin, another Indian crypto exchange, stated:

It (the tax) is normal and not too high … if you are earning a personal income of more than 12 lakh per annum, then you are in the 30% slab anyway.

Another anonymous source highlighted a contradiction in the government’s statements claiming that the Indian government had previously wanted to prohibit all cryptocurrencies in India and at the same time wanted to allow certain exceptions to promote the underlying technology.

In November of last year, the Reserve Bank of India, the country’s central bank had highlighted plans to launch a pilot CBDC project in the fiscal year April 2022 to March 2023.

The Indian cryptocurrency industry presented several demands stating that the government should classify cryptocurrencies, provide some clarity on taxation, and establish a self-regulatory framework.

Like many other, countries India is waiting for a global consensus on crypto regulation. Earlier this year, Indian Prime Minister, Narendra Modi called for global cooperation on cryptocurrencies. Modi stated that challenges such as crypto cannot be tackled individually by nations.

Other Countries Legalizing Cryptocurrencies

Previously, in September 2021, El Salvador made history by becoming the first country to legalize cryptocurrencies, making Bitcoin an official currency.

The United States Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has been issuing guidelines regarding Bitcoin since 2013.

While the European Union does recognize cryptocurrencies as an asset, yet it is illegal to use crypto within the EU. Other countries including Canada, Australia, Denmark, France, Germany, Iceland, Japan, Mexico, Spain, and the United Kingdom hold a friendly stance on cryptocurrencies and have developed some form of regulation.

On the other hand, countries such as Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar, and Tunisia, have completely banned services and exchanges surrounding cryptocurrencies.