India takes a step forward in crypto adoption with the annual budget announcing the anticipated launch of the Digital Indian Rupee and a 30% taxation on crypto revenue.
The annual budget clearly indicates to Indian investors that cryptocurrency won’t be banned in India as Nirmala Sitharaman, India’s Finance Minister, declared a 30% tax on any income generated from the transfer of digital assets.
During the budget, she stated, “There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.”
Moreover, India will introduce its own digital asset, i.e., central bank digital currency (CBDC) in the next financial year of FY 2022-23, for which she said, “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.”
This would motivate Indian investors to explore the potential of the new technology. However, imposing such heavy taxes may compel retail investors to reconsider investing in the cryptocurrency market.
Nischal Shetty, co-founder and CEO of WazirX, on the other hand, stated on Twitter, “Today’s budget has promised a very bright future for the Indian crypto business.”
He also believes that the new regulation will reduce the threat of cryptocurrency bans in India.
Will the New Tax System Hinder Retail Investment?
The unexpected announcement of a 30% tax on digital assets has sparked concern among Indian investors. As a result, some investors may exit their cryptocurrency positions and enter the equity market. Compared to other alternatives, the new tax rate appears to be excessively high for such a new financial instrument.
However, Indians with an annual income of more than 12 lac rupees (about $16K) are liable to a 30% tax. As a result, such high-value investors are likely to maintain their holdings.
The Reserve Bank of India, India’s central bank, has announced the launch of a pilot CBDC project, Digital Rupee, in the fiscal year April 2022 to March 2023. The increased taxes on the maturing crypto community, on the other hand, casts doubt on the advancement of blockchain technology.
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