Govt levies 30% tax on digital assets

Bengaluru: India will be one of the first largest economies to launch a digital version of the rupee in the next financial year, the Union Budget 2022 announced on Tuesday. "Introduction of a central bank digital currency will give a boost, a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system," Finance Minister, Nirmala Sitharaman said announcing the various proposals of the budget.

The Reserve Bank of India will introduce the digital rupee in the next financial year. Though the fine print of the roll out has not been given, digital currency is likely to boost the digital ecosystem in the country.

As per the announcement, this digital currency will be powered through blockchain technology. Many large economies of the world including the US, Japan, China are mulling to come up with central bank digital currency (CBDC). With this announcement, India joins that league at a time the country is still deliberating over regulations of cryptocurrencies.

In the post budget press conference, Finance Minister clarified that cryptocurrencies are not currencies, and only RBI-issued digital currency would be valid and considered as currencies.

However, the budget on Tuesday unveiled proposals to tax digital assets at 30 per cent of the total income. Though the FM didn't name cryptocurrencies, cryptos are seen as those assets liable to the new taxation proposals. Newly introduced NFTs (non-fungible tokens) are the other asset classes that will be see similar tax imposition.

Industry experts are of the opinion that introduction of digital currency by the RBI is a step forward towards recognising cryptocurrency ecosystem. Also, the new tax proposals on digital assets is an indication that the government will allow cryptos to exist in the ecosystem without any punitive measures.

"The proposal to come up with digital currency is a welcome move. It will give boost to the blockchain technology. IT services companies, fintechs and other emerging players can create technology stacks based on the digital currency," said Pareekh Jain, an engineering services expert and Founder of Pareekh Consulting. Meanwhile, cryptocurrency exchanges hailed the move as the proposals seemed to be one step forward in formal recognition of crypto ecosystem.

"We are delighted by the announcements today. It gives relief to a lot of investors that the government is recognizing the crypto asset ecosystem and has taken efforts to give clarity on its taxation. This legitimizes the crypto asset in the country and paves way for a formal umbrella of regulations going forward," said Vikram Subburaj, CEO of Giottus Crypto Exchange. Legal experts said that with high taxation on digital assets may demotivate investors to put money in cryptos, through much-needed clarification has come from the budget on these asset classes.

"Clarification on virtual digital asset was also much awaited which was there in pre-budget expectations. Though non allowance of any expenditure incurred except to cost of purchase while calculating the profit and not allowing the set-off of loss from such transaction with gains of other business or income from other sources is demotivating for investors in such assets, however, at least now there is a clarity on the subject and investors may strategies their infusion accordingly," said Paras Nath, Partner, Tax & Regulatory Services at T R Chadha & Co LLP.

Meanwhile, fintech firms see the launch of digital currency by RBI promoting financial inclusion. The launch of Digital Rupee using blockchain technology only shows that India is on the right track towards technology adoption and this is surely a positive move. This much-awaited push on digitization will pave the way for financial inclusion and it is just the beginning," said Rohit Garg, CEO and Co-founder of SmartCoin.

Push to digital ecosystem

• RBI to launch digital currency in FY23

• FM says cryptocurrencies are not currencies

• Digital assets like cryptos, NFTs to be taxed at 30%

• Crypto players hail the move, see it as the precursor to formal recognition

• Digital currency to foster innovation, financial inclusion, & create business opportunities