The Indian government has announced it will start taxing cryptocurrencies
and NFTs amid the country's plans to release a digital currency next year.
The country with the world's second largest internet market is already
moving closer to making crypto a legal tender.
Indian Finance Minister Nirmala Sitharaman announced that the government
will impose a 30% tax on income earned from digital asset transactions.
In order to capture the details of all such crypto transactions, he also
proposed a 1% tax reduction on the source of payments made related to the
purchase of virtual assets.
“No deductions with respect to any expenses or allowances are permitted when
calculating such income except for the cost of acquisition. Furthermore, the
losses from digital asset transfers cannot be balanced with other income,"
said Nirmala Sitharaman as reported by Techcrunch, Wednesday (2/2).
The policy plan was announced in the state budget speech. Gifts of virtual
digital assets are also proposed to be taxed in the hands of the recipient.
The proposal comes at a time when crypto and NFT asset purchases are
increasing rapidly in India.
Binance's WazirX noted that annual trading volume exceeded $43 billion in
2021. That's a 1.735% growth from 2020.
The increasing adoption of crypto tokens has also led to the emergence of a
group of startups looking to innovate in this area, although their
aggressive marketing campaigns have left many wondering.
Andreessen Horowitz made his first investment in India last year by backing
cryptocurrency exchange CoinSwitch Kuber. "The magnitude and frequency of
these transactions have made it important to provide a specific tax regime,"
he said.
India's central bank will introduce a digital currency next year. The
Reserve Bank of India/RBI has tested the Central Bank Digital Currency
(CBDC) to see its impact on the banking and monetary system.
India's move comes after China has started CBDC trials in several cities.
The People's Bank of China has processed more than 3 million transactions in
digital yuan worth more than US$160 million as part of its CBDC trial.
The tax imposition plan created more confusion among entrepreneurs, venture
capitalists and the general public about how New Delhi plans to handle
cryptocurrencies.
By introducing a tax system for crypto-related transactions, New Delhi
appears to be recognizing such virtual assets as legal tender.
