Commencement of Digital currency in the Indian economy is at a stone’s throw after Finance minister Nirmala Sitharaman on Feb 1 presented the Union Budget 2022-23. Among many key highlights of the presentation, the digital currency managed to get on the list.
The finance minister declared that the country’s central bank, the Reserve Bank of India (RBI), will introduce a digital currency in the next financial year using blockchain and other supporting technology. Currently, cryptocurrency is not being regulated and it is not considered legal tender in India. Legal tender is a legally recognized payment instrument used to fulfil a financial commitment. In other words, it is an economic medium that is accepted by the legal system.
Sitharaman also stated that the central government is imposing a 30 per cent tax on virtual digital assets, bringing cryptocurrencies and non-fungible tokens (NFTs) beneath a tax quagmire.
As of now, there is no regulation or any ban on the use of cryptocurrencies in the country. The Reserve Bank of India’s (RBI) order banning banks from funding crypto transactions, was inverted by the Supreme Court order of March 2020.
Industry estimations indicate 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.
“A high-level Inter-Ministerial Committee (IMC) constituted under the Chairmanship of Secretary (Economic Affairs) to study the issues related to virtual currencies and propose specific actions to be taken in the matter recommended in its report that all private cryptocurrencies, except any virtual currencies issued by the state, will be prohibited in India,” Finance Minister Sitharaman said in Rajya Sabha on February 9.
The Congress leader asked Sitharaman a burning question after this declaration to clarify three key questions regarding the Centre’s outlook towards digital tokens pointing out that the cryptocurrency-related bill has to get approved by the Parliament before the government can consider imposing a tax on cryptocurrencies.
Reacting to the announcement, Congress general secretary Randeep Singh Surjewala asked the finance minister to elucidate whether cryptocurrency has been made legal now.
Sitharaman also said casualties from their sale could not be counteracted against other income, delivering another disincentive to trading and investment in digital assets besides placing earnings from cryptocurrencies and non-fungible tokens (NFTs) in India’s highest tax band.
Earlier, RBI released another circular, regurgitating its concerns with virtual coins as banks continued to allow transactions on cryptocurrency exchanges on February 1, 2017. And by the end of 2017, a warning was issued by RBI and the finance ministry clarifying that virtual currencies are not legal tender.
At the same time, two Public Interest Litigations (PILs) were filed in the Supreme Court, one for a ban on dealing in cryptocurrencies in India, the other asking for them to be regulated. In November, the government formed a committee to study issues around virtual currencies and propose actions.
