Budget 2022 had several important policy announcements with respect to the world of cryptocurrencies, Central Bank Digital Currencies (CBDCs), and other forms of digital currencies. These policy announcements serve to address a lot of confusion and anxiety with respect to the Central Government’s and RBI’s policies towards digital currencies.
One of the policy announcements which gained a lot of attention was the proposed amendments to the Income-tax Act relating to virtual digital assets. There were a series of amendments concerning virtual digital assets which were proposed. Budget 2022 proposed bringing cryptocurrencies (which were defined as one of the forms of virtual digital assets) and other forms of digital currencies included in the definition under the ambit of taxation. The Budget proposed that income generated by a resident from the transfer of cryptocurrencies and other virtual digital assets be taxed at a rate of 30 per cent. It also proposed a mechanism for tax to be collected at source in transactions involving the transfer of a virtual digital asset.
There has been a lot of debate that such an amendment proposing taxation of income from virtual digital assets amounts to conferring legal status on cryptocurrencies and other forms of virtual digital assets. However, I would like to caution the readers that this is not yet clear from the reading of the Budget since it only mentions the taxation treatment of transactions involving virtual digital assets (cryptocurrencies included).
But perhaps the most consequential announcement with respect to digital currencies was a small amendment proposed to the Reserve Bank of India Act, 1934. Tucked away in the Miscellaneous section of The Finance Bill, 2022 is the proposed amendment to introduce a clause defining a “bank note” as “a bank note issued by the Bank, whether in physical or digital form, under section 22” * $. Delivering the Budget speech, the Hon’ble Finance Minister announced, “It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23”. The proposed amendment, along with the announcement of the Hon’ble Finance Minister, marks a big step forward by the Central Government and RBI in the adoption of digital currencies and blockchain in India (and consequently for the global economy).
This measured approach taken by the Central Government towards the adoption of digital currencies is a more welcome approach as opposed to the adoption of non-sovereign backed digital currencies as legal tender.
* – the Bank refers to The Reserve Bank of India
$ – section 22 refers to section 22 of the Reserve Bank of India Act, 1934
Written By Prof. (Dr.) Keerti Pendyal, Assistant Professor and Assistant Dean (Outreach & Promotion), Jindal School of Banking & Finance
