India’s decision to adopt the cryptocurrency trend is getting closer after deciding to immediately launch a digital rupee despite years of hesitation. Reported by Bloomberg on Tuesday (1/2/2022), Indian Finance Minister Nirmala Sitharaman said the Reserve Bank of India will launch a central bank digital currency (CBDC) on April 1, 2022. The country also plans to impose an income tax. of virtual asset transfers of 30 percent, he said, effectively removing uncertainty about the legal status of the transaction.
The Finance Minister said the launch of the digital rupee will usher in cheaper and more efficient currency management. The Reserve Bank of India has been working on a phased implementation strategy, which could reduce the country’s high dependence on cash.
India will catch up with other countries like China in pushing for a digital version of the currency as they look to leverage new technologies to make transactions more efficient. At the same time, high tax rates on cryptocurrencies could dampen a trade spike in India despite the central bank’s warnings about the risks of money laundering, terrorist financing and price volatility.
“Imposing tax rates takes crypto trading legal and any concerns about bans off the table,” said Darshan Bathija, co-founder and Chief Executive Officer of Vauld, a Singapore-based crypto trading platform. However, relatively high tax rates could encourage merchants to move to platforms in other countries, which would reduce revenue for the Indian government, he added. Bitcoin is up more than 2 percent from today’s low following the tax announcement.
So far, India doesn’t have a law regulating the trading of virtual coins even though regulators filed a ban last year. However, the ban has not stopped millions of Indians from keeping up with the global demand for digital assets. The local crypto market jumped 641 percent in the year to June 2021, according to an October report from Chainalysis, an industry research firm. “There has been a phenomenal rise in virtual transactions in digital assets. The magnitude and high frequency of these transactions have made it important to provide a specific tax regime,” said Sitharaman.