India’s proposed tax rate on income from virtual assets is steep, but it signals that the government recognizes the country’s cryptocurrency industry, the head of a top crypto exchange told CNBC.
In the Feb. 1 annual budget, Finance Minister Nirmala Sitharaman noted in her speech the “phenomenal increase in transactions in virtual digital assets.” She proposed a 30% tax on any income from the transfer of digital assets and said no deductions would be allowed. Losses incurred from such transactions could not be set off against any other income.
Furthermore, India planned to impose a 1% tax deducted at source, or TDS, on payments related to the transfer of digital assets.
Ashish Singhal, founder and CEO of CoinSwitch, told CNBC on Thursday that the 30% levy was a bit much. He said, however, it was still an overall positive move as it removes some of the ambiguity around the Indian government’s stance on crypto seen in recent months.
“What this signals is that government recognizes this industry and hopefully the crypto bill would address the legality of this ecosystem as well,” Singhal said on “Street Signs Asia.”
He explained that the Blockchain and Crypto Assets Council — the industry body in India — would aim to work with the authorities to make the tax for crypto earnings on par with other asset classes over time.
Last November, a parliamentary bulletin indicated that the government planned to introduce a new bill aimed at regulating digital currencies. That bulletin said India sought to ban most private cryptocurrencies and establish a framework for a central bank-issued official digital currency.
Since then, local media reports have said that the Indian government may decide to regulate the crypto industry instead of imposing a blanket ban.
The proposed bill has not yet been introduced. It was not listed among the proposed legislation that may come up before Parliament in the current session, according to media reports.
Singhal said that the proposed tax on digital assets provided clarity to the industry on the government’s thinking, but noted the steep rate would likely deter some users who saw virtual currencies as a “quick-rich” scheme.
“What the government has done very smartly is to separate the currency use case of crypto to the asset class use case of crypto,” he said, adding that the former would be handled by the Reserve Bank of India.
“And then, they have recognized crypto assets as an asset class in itself. So that is a big move in my opinion in legitimizing the asset-class use case, the investment use case of crypto,” Singhal said.
In her budget speech, Sitharaman proposed that the central bank would start issuing digital rupee, using “blockchain and other technologies,” in the upcoming fiscal year that begins on April 1.
When that happens, India would become the latest country to join the trend where central banks in other nations are exploring so-called central bank digital currencies. CBDCs are legal tender in digital form and are essentially the online version of their respective fiat currencies.
The digital rupee “will give a big boost to digital economy,” Sitharaman said, adding, “Digital currency will also lead to a more efficient and cheaper currency management system.”
RBI Governor Shaktikanta Das told CNBC last year that the central bank had been studying various aspects of a digital currency including its security, impact on India’s financial sector as well as how it would affect monetary policy and currency in circulation.