In Budget 2022-23, Finance Minister Nirmala Sitharaman sought to bring virtual digital assets, also called virtual currencies (VCs) and cryptocurrencies, within the ambit of taxation. Bitcoin is the most popular VC.
This raised the hopes of the investors concerned and the crypto industry players that VCs would now be legalized—a big relief for them because the Reserve Bank of India had banned them some time ago, though the Supreme Court later invalidated the ban.
“They are in a grey area. It’s not illegal to buy and sell crypto,” Finance Secretary TV Somanathan said in an interview to a TV channel after the Budget. “We have now put in a taxation framework that treats crypto assets the same way we treat winnings from horse races, or bets and other speculative transactions.”
Speaking at a post-Budget interaction organized by a business chamber, Sitharaman talked about the Centre’s consultation process for cryptocurrency formalization. “We will come up with clarity soon.”
In her Budget speech, she had said, “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. Accordingly, for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 percent.”
While many people grumbled about the high rate of taxation—in fact, the highest among all asset classes—there was also relief that at long last cryptocurrencies will get legal status. According to a Reuters report, “Industry estimates suggest there are 15 million to 20 million crypto investors in India, with total crypto holdings of around 400 billion rupees ($5.37 billion). No official data is available on the size of the Indian crypto market.” Rs 400 billion are 40,000 crore. Apparently, a lot of Indians were, and are, interested in VCs; yet, there was little clarity about its legal status. is was primarily because of the RBI’s stubborn resistance to cryptocurrencies.
The biggest hurdle in the path of legalization was the RBI. The central bank outlawed cryptocurrencies in April 2018. On March 4, 2020, however, a three-judge Bench of the Supreme Court had quashed the ban.
But this didn’t deter the RBI from opposing it tooth and nail. A few months ago, Governor Shaktikanta Das conveyed his “serious and major concerns” over VCs to the Government.
The RBI’s stubbornness caused a great deal of trouble to crypto investors. Commercial banks were confused. So, on May 31, 2021, the RBI directed banks not to cite its 2018 ban as a reason to deny banking services to customers dealing in VCs. “It has come to our attention through media reports that certain banks/regulated entities have cautioned their customers against dealing in virtual currencies by referring to the” ban it had imposed, an RBI circular said.
But now the RBI itself would issue a digital rupee. As Sitharaman said in her Budget speech, “Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy.
