In today’s budget speech, India’s Minister of Finance, Nirmala Sithara, announced concrete plans for a central bank digital currency (CBDC). A digital rupee that uses blockchain and other technologies will be issued within the coming tax year, ending March 2023. She cited the primary purposes as to boost the digital economy and manage currencies more efficiently.
The central bank previously said it would start trials in December 2021, but nothing concrete has been hard so far.
This will mean that CBDCs will be issued by the world’s most populous jurisdictions, China and India, each with more than 1.4 billion citizens. The two countries together represent 36% of the global population.
Some believe that a strong digital identity system is essential for a robust digital currency system, and India has its Aadhar system launched in 2009.
Cryptocurrency, NFT taxes
In today’s budget, a 30% tax on cryptocurrency related income was also announced. The tax covers all virtual digital assets, including non-fungible tokens (NFTs). The only deduction allowed is the cost of the investment, which means that losses from one crypto transaction cannot be set off against gains from another.
Tax will be deducted at source based on 1% of the transaction value above a certain threshold. In some cases, this will be significantly below the tax owing, but this enables the government to identify which transactions should be taxed, so they can follow up if the taxpayer doesn’t report it. It also means that cryptocurrency exchanges will be responsible for reporting transactions to the authorities.
It’s unclear how this 1% tax at source will impact transactions in self-custodied wallets executed on decentralized exchanges. However, if the gains are used to buy physical goods and services, that would usually be cashed out via an exchange. That’s unless the money is spent at outlets that accept cryptocurrencies for payment.
As an anti-avoidance measure, crypto gifts will be taxable on the recipient. Otherwise, people might give away a proportion of their crypto and avoid taxes.