Blog

Crypya - The new Indian Digital currency

OnTuesday,India’s central bank will launch for the digital version of the rupee in the next financial year, the country’s finance minister said. “Introduction of a central bank digital currency will give a boost, and a big boost to the digital economy,” Nirmala Sitharaman said that the delivered the country’s annual budget. ‘Digital currency will also lead to a more efficient or cheaper currency management system.

Sitharaman gave no details about how the digital rupee would work or what it would look like, but said it would be introduced by using block-chain and other technologies. The Reserve Bank of India will introduce the digital rupee in the 2022 to 2023 financial year which begins on April. Block-chain refers to the technology that was originally created beside bitcoin, but the definition has since evolved as its applications have moved beyond cryptocurrencies.

India would be one of the world’s largest economies to introduce also-called central bank digital currency (CBDC). Since2014, China has been working for the digital version of its yuan  and furthest ahead when it comes to launching central bank digital currency (CBDCs) globally.

Previous year, the People’s Bank of China has been carrying out trials in the form of lotteries, where digital yuan is handed out to citizens in certain cities for them to spend. In recently, the central bank has looked for the expand the use of the digital yuan. China hasn’t launched its digital currency nationwide and has no timeline to do. Japan is looking into its owncentral bank digital currencyand the U.S. Federal Reserve in last month released a study into a digital dollar, but didn’t take a firm position on whether it would issue one.

While India is pushing forward with the digital rupee, it has tried to take a tougher stance on cryptocurrencies such a bitcoin and is currently working on regulation for the sector. Sitharaman said income from the transfer of virtual digital assets should be taxed at rate of 30 percenton Tuesday.

30 percent tax on income from cryptocurrency, digital assets

• On Tuesday,the Centre proposed a 30% tax on income from transactions in such assets. Also, to bring such assets under the tax net, she proposed a 1% TDS (tax deducted at source) on transactions in such asset classes above a certain threshold. 
• Gifts in crypto or digital assets will also be taxed.
• The tax proposals will come into effect from April 1 after the passage of the Union Budget in Parliament. 

What experts have to say

• The 30 % levied on income arising from the sale for cryptocurrency is similar to the tax rate on winnings from lottery, game shows, puzzles and more.
• Creation for the block-chain-based central bank digital currency while bringing virtual digital assets under the tax net at the highest rate of 30 % will help reduce speculative play, especially in the cryptocurrency space,saidShravan Shetty, MD, Primus Partners, Digital Currency. The central currency will help bring the benefit for the digital currency to the economy in a structured framework.
• Harry Parikh, Associate Partner - M&A Tax and Regulatory Services, BDO India, said that nonchalant introduction for taxation on digital currency coupled with a withholding tax on every transaction could give rise to a lot of compliance issues for crypto businesses.

RBI's stand on cryptocurrencies or digital currency

The RBI (Reserve Bank of India) has already been deliberating upon many aspects relating to the central bank digital currency and private crypto currencies. The central bank has been working on modalities for central bank digital currency. Nevertheless, it has expressed reservations on private cryptocurrencies.

Shaktikanta Das - RBI Governor has already said that cryptocurrencies are a very serious concern from the macro-economic or financial stability perspective. At present, Central bank digital currency are hypothetical stage, with some in proof-of-concept programmes. Nevertheless, up to 80 % of central banks are looking at digital currencies.

Countries stand on digital currency

China's digital RMB was the first digital currency to be issued by the major economy. In 2021 September 27, Tajikistan announced the creation of central bank digital currency with the Fantom Foundation and Nigeria was the first African country to launch its central bank digital currency on October 25.

In recent report,the Bank of America said in that a US central bank digital currency would differ from the digital money currently available to the public because it would be a liability of the US Federal Reserve, not a commercial bank and  no credit and liquidity risk.

On November 29, the US Fed has also published benefits and risks of a central bank digital currency. In earlier, the Indian government was slated to introduce for the new regulations for cryptocurrency during the Winter Session of Parliament. The session ended without seeing the -The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.