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After years of hesitating, India took a step closer to accepting cryptocurrencies, as the nation strives to stay up with the worldwide shift toward digital assets. Bitcoin increased in value. 

According to Finance Minister Nirmala Sitharaman’s budget statement on Tuesday, the Reserve Bank of India would debut its digital currency in the fiscal year beginning April 1. She also stated that the country intends to tax profits from the transfer of virtual assets at a rate of 30%, essentially resolving uncertainty regarding the legal status of such transactions. 

Cash-dependent India has joined nations such as China in developing digital versions of their currencies as they seek to use new technology to make transactions more efficient.

At the same time, the high tax rate on cryptocurrency may deter traders, notwithstanding the central bank’s warnings about the hazards of money laundering, terrorist funding, and market volatility. 

The imposition of the tax rate “makes crypto trading official today, and any fear of a ban is out of the question,” said Darshan Bathija, co-founder and chief executive officer of Vauld, a Singapore-based crypto exchange platform. Nonetheless, the relatively high tax rate may cause traders to shift to platforms in other countries, reducing income for the Indian government. Bitcoin surged more than 2% from the day’s low following the taxing announcement.

So yet, India lacks legislation governing virtual coin trade, despite proposing a ban early last year. Despite this, millions of Indians have jumped on the worldwide market for digital assets. According to an October analysis from Chainalysis, an industry research organisation, the local market increased 641 percent in the year to June 2021. 

“Transactions in virtual digital assets have increased dramatically,” Sitharaman added. “Because of the scale and frequency of these transactions, a particular tax structure is required.” 

According to the finance minister, the introduction of a digital rupee will result in cheaper and more effective currency management.

The Reserve Bank of India has been developing a phased implementation approach that might minimise the country’s reliance on cash. 

China has already begun testing its central bank’s digital currency in many places, and it aims to begin rolling out digital yuan for usage by athletes and spectators at the Beijing Winter Olympics this week. The Federal Reserve of the United States and the Bank of England are both investigating economic prospects.

Other major statements on crypto assets from the budget speech include: 

• Losses from the transfer of digital assets cannot be offset against other income; 
• All crypto transactions will be taxed at 1% at the source; and 
• Gifts of virtual assets will be taxed in the recipient’s hands.