India will not ban cryptocurrencies but will impose a heavy tax of 30% on income from them.
The announcement was part of the country’s federal budget presentation this week, which placed earnings from cryptocurrencies and non-fungible tokens (NFTs) in India’s highest tax band.
Additionally, losses from crypto sales could not be offset against other income, potentially discouraging trading and investment in digital assets.
While this looks like bad news for crypto investors in the country, experts hope that the establishment of a formal tax framework means that the government had is warming up to the idea of digital currencies, reassuring corporates to enter the market.
‘We also hope this development removes any ambiguity for banks and they can provide financial services to the crypto industry,’ Nischal Shetty, CEO of WazirX, a virtual currency exchange, told Reuters.
The Indian government was known for draconian measures against crypto and even banning it at one point. So, the regulation is a welcome change for the Indian crypto community.
However, the idea of paying more than 30% of their crypto profits in tax and other charges will not appeal to new investors.
India’s central bank has previously voiced ‘serious concerns’ around private cryptocurrencies on the grounds that these could cause financial instability. As a result, several banks severed ties with crypto firms.
In a U-turn from that stance, India’s Finance Minister Nirmala Sitaraman said that the central bank will introduce a digital currency in the next financial year using blockchain and other supporting technology.
‘The introduction of a central bank digital currency will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,’ said Sitharaman.
India’s Finance Secretary later confirmed that cryptocurrencies like Bitcoin or Ethereum will ‘never become legal tender’ i.e be used for payments. Users can instead use the digital rupee issued by the central bank to purchase non-digital assets.
Industry estimates suggest there are 15 million to 20 million crypto investors in India, with total crypto holdings of around 400 billion rupees (£3.96 billion). No official data is available on the size of the Indian crypto market.
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