KEY POINTS

  • India to tax crypto assets including tokens and NFTs at 30%
  • Gifting of virtual assets to attract tax
  • To issue central bank digital currency in FY23

India announced a 30% tax on income from digital assets, which include cryptocurrencies and non-fungible tokens (NFTs), on Tuesday, part of long-awaited measures to regulate cryptocurrencies whose popularity and decentralized nature have made their regulation challenging.

Finance Minister Nirmala Sitharaman said while presenting the country's annual budget in parliament that, moving forward, all income from virtual digital assets would be taxed at the new rate. This means that India has joined the list of countries, like Russia, where cryptocurrencies would be formally taxed as per government regulations.

Importantly, the minister said no deductions to offset losses in crypto trading would be allowed while computing taxes, except the cost of acquisition of the asset, indicating the government looks at the high taxes more as a tool to throttle cryptocurrencies.

India's parliament was to consider a comprehensive bill to regulate cryptocurrencies earlier but that has been delayed as the government grapples with regulating a decentralized asset that has no ownership and is wildly popular among the tech-savvy younger generation. India's government had expressed concern about the lack of regulation in cryptocurrencies and their use in terror financing and cybercrimes.

The finance minister also put forth a 1% tax, which would be deducted at source on all transactions of buying and selling of virtual digital assets. The minister said gifting of virtual digital assets would be taxed and this would be borne by the recipient.

Most experts say that the term 'virtual digital assets' is wide enough to include cryptocurrencies, digital collectibles, digital art, other NFTs, etc.

The Reserve Bank of India (RBI), which is the central bank of the country, had previously taken a dim view on cryptocurrencies, saying they were speculative assets and the markets were volatile and unstable. The finance minister said the RBI would also be launching its own digital currency backed by blockchain technology. Many central banks are either rolling out or weighing the rollout of central bank digital currencies, or CBDCs, partly to combat the popularity of cryptocurrencies.

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