India is set have a digital rupee by next year. The digital rupee, to be issued by the Reserve Bank of India starting 2022-23, will use blockchain and other technologies. This was announced by Finance Minister Nirmala Sitharaman in her Union Budget speech today.
"The introduction of central bank digital currency will give a big boost to the digital economy. Digital currency will also be a more cheaper and efficient currency management system," she said.
The Budget, which seemed focused on tech and business, also proposed a 30% tax on proceeds from transfer of virtual digital assets like cryptocurrencies and NFTs. The Budget also proposed a 1% tax deduction at source on payments made related to purchase of virtual assets.
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Are virtual assets now officially recognised?
"There will be no deduction with exception of the cost of acquisition. The TDS is applicable beyond a specified monetary threshold, and the gift of virtual currencies is taxable in the hands of the recipient,” Nirmala Sitharaman, in what is her fourth Union Budget, said.
Taxing of crypto-related transactions is seen by certain sections as a tacit recognition to virtual assets. However, it is still open to debate, and India's tryst with crypto transactions, it would seem, would continue to be mired in complexity.
On the digital currency, the RBI last year got the nod for amendment to the Reserve Bank Of India Act, 1934 to tweak the definition of bank note to include currency in digital format.
RBI had also said that Indian government's digital currency would be Central Bank Digital Currency (CBDC), and it would be a sovereign currency in an electronic form and would appear as liability (currency in circulation) on the central bank’s balance sheet. The government had also informed Lok Sabha last year that the RBI is working out a phased implementation strategy for introduction of CBDC by examining use cases, to avoid any disruptions. The CBDC is not like the private virtual currencies that are now dime a dozen.
But more clarity is needed to how this official digital currency would work in every-day reality, and how different it would be from other cryptocurrencies, towards which the government is not too enamoured.
The RBI, in fact, is keen to ban them.
So, in a sense, the government needs to come up with follow up information to clear the air.
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