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Budget 2022: RBI To Issue Blockchain-Based Digital Rupee, Profit On Digital Assets To Be Taxed At 30%
NEW DELHI: Finance Minister Nirmala Sitharaman while presenting Union Budget 2022 said on Tuesday morning that the Reserve Bank of India will soon release a digital rupee. The RBI’s digital currency will be built on blockchain technology, the same technology that powers Bitcoin and other popular cryptocurrencies.
The finance minister stated that a digital rupee will be created by 2022-23, but she did not address the future of Bitcoin and other crypto tokens.
Digital Rupee
“Introduction of Central Bank Digital Currency (CBDC) will give a big boost to digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,” Nirmala Sitharaman said.
The Finance Minister announced that it proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23.
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India will not be the only country to introduce a digital currency. Nigeria also introduce eNaira, a non-interest-paying CBDC, in October 2021. CBDCs have also been legalised in the Bahamas and five additional East Caribbean islands.
“The formal announcement on launch of India’s CBDC, the Digital Rupee, during 2022-23 is a much awaited and positive move,” said Harish Prasad, Head Of Banking, India, FIS.
Prasad explained that this will trigger a wave of preparatory activity amongst retail payments providers and apps to offer payment mechanisms using the Digital Rupee, along the lines as been seen in China with major Digital payments players and apps offering Digital Yuan payments via their apps. There will likely be a similar model that will be seen in India to support adoption and use of the Digital Rupee, which is paramount for its success.
“Another effect of this in the slightly longer term could be that the dependence on UPI for small value payments could potentially reduce with the Digital Rupee gaining traction in time. Given the level of growth being seen on UPI and the associated stress on technology infrastructures of issuers and banks, this may be a good thing after all,” Prasad added.
During her Budget statement, the Finance Minister was anticipated to provide greater clarity on the use of Bitcoin. However, no mention of Bitcoin or other cryptocurrencies was made. Instead, a crypto tax has been implemented.
Scheme for taxation of virtual digital assets
“There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime. Accordingly, for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent,” Sitharaman said.
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No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from the transfer of virtual digital assets cannot be set off against any other income, she explained.
“Further, in order to capture the transaction details, I also propose to provide for TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold,” Finance Minister said.
The gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.
Harish Prasad, Head Of Banking, India, FIS said what will be keenly awaited though is clarity on digital currency owner identification and any associated reporting requirements for payments apps, and whether the anonymity that physical currency enables is an attribute that will be supported in the Digital Rupee.
Reacting to the announcement Avinash Shekhar, CEO, ZebPay said, “Tax has always been applicable to gains on virtual digital currencies, but the ecosystem did not have clarity on it. The move to tax virtual digital assets gives the entire ecosystem including investors and exchanges transparency on the road ahead. 30% tax on income from virtual digital assets, while high, is a positive step as it legitimizes crypto and hints at an optimistic sentiment towards further acceptance of crypto and NFTs across stakeholders in the country. The government has come a long way in its stance towards crypto from last Feb to today and we are confident that this will herald a new era of growth and innovation for India in a Web 3.0 world.”
Shekhar said additionally, the announcement on the launch of a Digital Rupee using blockchain issued by the RBI will familiarise Indians with the benefits and efficiency of virtual currency, building an appetite for the crypto, blockchain and the multitudes of innovations and employment opportunities that these technologies are capable of fostering.
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