Though the government has yet to confirm whether and how it will allow cryptocurrencies, sources for long have said that cryptocurrencies will be treated as a digital asset, which the Finance Minister, Nirmala Sitharaman, appeared to confirm today.
While presenting the Budget in parliament, Ms Sitharaman said that income from digital assets will be taxed at 30%, the highest tax band in the country.
"I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent. No deduction in respect of any expenditure or allowance shall be allowed while computing such income, except the cost of acquisition," the minister said,
After initially planning to ban cryptocurrencies, the Modi government is instead preparing legislation to regulate their use. At her customary press conference held after she presented the Budget, the minister, responding to a question from NDTV's Sunil Prabhu, indicated that cryptocurrencies will be treated as digital assets. "Currency rests only with the RBI, everything else is crypto assets and will see 30% tax," she said, stressing that the term "cryptocurrency" is incongruous with India's plans.
Losses from transactions in virtual digital assets cannot be offset against other income. For cryptocurrencies given as gifts, the tax will be incurred by the recipient. A 1% TDS (tax dedicated at source) will apply to all digital asset transactions, Ms Sitharam told NDTV.
If cryptocurrencies are introduced as a financial asset, they cannot be used to make payments, but they can be held like shares or gold. When asked by NDTV how taxes for crypto coins are being announced without clarity on how they will be regulated, the minister said, "we are collecting inputs on regulation for crypto assets... I don't wait till regulation comes in for taxing people who are making profits. "
The RBI has voiced "serious concerns" around private cryptocurrencies on the grounds that these may cause financial instability. The Finance Minister said today that the RBI will this year introduce a digital rupee, backed by blockchain technology. "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," Ms Sitharaman said.
There are an estimated 15 million to 20 million cryptocurrency investors in India, with total crypto holdings of around Rs 40,000 crore ($5.29 billion), according to industry estimates.