India’s huge U-turn on previous cryptocurrency ban

A new tax rule in India might seem like bad news, but experts have assured cryptocurrency holders that it is actually a good thing.

The new rule might seem like bad news but experts have assured cryptocurrency holders that it is actually a good thing. Picture: Prakash Signh/AFP

Just two months after India flagged it might be banning cryptocurrency, the nation has done a complete 360 and has now legalised blockchains instead.

On Tuesday local time (Wednesday AEDT), India’s finance minister Nirmala Sitharaman, announced that any income generated from digital assets will be taxed at 30 per cent.

Cryptocurrency and non-fungible tokens (NFTs) fall under the umbrella of a “digital asset”.

While regulations might seem like bad news for cryptocurrency investors, in this case it’s actually the complete opposite.

This has effectively removed the uncertainty surrounding the legal status of cryptocurrencies.

Darshan Bathija, chief executive officer of Singaporean crypto exchange Vauld, told Bloomberg: “Imposing the tax rate makes crypto trading official now and any concern of a ban is off the table.”

Bitcoin, the world’s top-ranked cryptocurrency, jumped by 2 per cent off the back of the news.

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Indian Prime Minister Narendra Modi was against cryptocurrency several months ago but has had a change of heart. Picture: Prakash Signh/AFP

Other industry experts were also positive about the announcement.

Avinash Shekhar, chief executive of ZebPay, a cryptocurrency exchange, told Reuters: “Thirty per cent tax on income from virtual digital assets, while high, is a positive step as it legitimises crypto and hints at an optimistic sentiment towards further acceptance of crypto and NFTs.”

Nischal Shetty, CEO of cryptocurrency exchange WazirX, said: “We also hope this development removes any ambiguity for banks and they can provide financial services to the crypto industry.”

The Reserve Bank of India will launch its own digital currency on April 1, known as a central bank digital currency (CBDC).

However, there are still elements to the new tax asset law that could deter investors.

Crypto and NFT holders will be taxed in the highest possible bracket.

And if they lose money on their speculative investments – which is highly possible given the volatile nature of the market – they don’t get any tax breaks.

Losses from their purchases could not be offset against other income streams, according to the finance minister.

Bitcoin rose slightly after India announced the new rules.

India has now legally recognised cryptocurrency.

Back in late November, India’s attitude towards cryptocurrency was markedly different.

At the time, the government proposed a bill to ban all private cryptocurrencies.

Prime Minister Narendra Modi warned that bitcoin presented a risk to younger generations and could “spoil our youths” if it ends up “in the wrong hands”.

Data suggests there are 15 million to 20 million crypto investors in India, with total crypto holdings of around 400 billion rupees ($A7.43 billion).

Blockchain powered Digital Rupee by @RBI will be introduced 2022-23 in India

Great news! More crypto adoption on the way 🚀

Glad to know that RBI will now start getting deeper into crypto. Hope to see banks start getting involved with crypto industry as well#IndiaWantsCrypto

— Nischal (WazirX) ⚡️ (@NischalShetty) February 1, 2022

Crypto is legally recognized in India, with a 30% tax.

— CZ 🔶 Binance (@cz_binance) February 1, 2022

India isn’t the only country toying with the idea of regulating cryptocurrency.

Australia’s finance watchdog is calling for greater regulations and over in the US, the Federal Reserve is eyeing off greater restrictions some time this year, potentially as soon as this month.

Last month, Russia indicated it was looking to ban the digital assets entirely over money laundering and environmental concerns.

China went a step further and completely banned all things crypto at the end of September last year in a major tech crackdown.

Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia and Bangladesh have also banned cryptocurrency.

In November, Indonesia also banned cryptocurrency for its entire Muslim population because it contained “elements of wagering”.