In a reversal, India says it will tax cryptocurrency and create a ‘digital rupee’

Sitharaman’s two-pronged announcement settled at least one question surrounding cryptocurrencies that has loomed for months over Asia’s third-largest economy. As recently as November, Prime Minister Narendra Modi had criticized cryptocurrencies, and his government proposed that digital coins not controlled by the government — which are all of them — should be banned outright.

Now, in declaring a 30 percent flat tax on income from trading cryptocurrency and non-fungible tokens, India joins the likes of the United States, Germany and a wave of other countries that have given their citizens the green light to trade the digital coins, which has captivated young Indians. It will also join China as one of the few countries to experiment with its own digital coin.

In 2021, India’s largest cryptocurrency trading platform, Mumbai-based WazirX, hit 10 million users trading $43 billion worth of cryptocurrency, according to the company.

Sitharaman said Tuesday that the “magnitude and frequency of these transactions have made it imperative” for the Indian government to start levying taxes.

“There has been a phenomenal increase in transactions in virtual digital assets,” she said.

The booming popularity of crypto trading in India, particularly among young people, has been a matter of growing concern for senior officials including Modi, who warned in several public speeches last year that cryptocurrencies could facilitate money laundering and terrorism financing. He told a think tank that rampant trading could “spoil our kids.”

In November, the Indian government released a bill that would ban Indian citizens from trading cryptocurrencies — triggering a steep fall in digital coin prices — before legislators and regulators clarified that the matter was still under consideration.

Despite its mixed views on cryptocurrency, the Modi government, which has frequently portrayed itself as a tech-savvy administration, has expressed interest in eliminating paper currency altogether and in harnessing blockchain technology.

In 2016, the Indian government removed much of the paper currency in circulation to combat corruption, but the move sparked widespread turmoil in the economy and a flurry of criticism. Since then, Modi’s government has promoted digital payments while mulling a rollout of its own digital currency that could be closely supervised. T. Rabi Sankar, a senior Reserve Bank of India official, said last year that India should develop a digital version of the rupee to stave off the popularity of publicly traded and difficult-to-track cryptocurrencies.

In her announcement Tuesday, Sitharaman said the digital rupee would be issued and controlled by the Reserve Bank of India, making it fundamentally different from decentralized cryptocurrencies, such as bitcoin. “The introduction of central bank digital currency will give a big boost to the digital economy,” Sitharaman said. “Digital currency will also be a cheaper and more efficient currency management system.”

Nischal Shetty, the chief executive of WazirX, said the government announcements Tuesday put India “finally on the path to legitimizing the crypto sector.” The development of the digital rupee, in particular, would legitimize blockchain technology and “give much-needed recognition to the crypto ecosystem of India,” he said in an email. “Overall, it’s good news for us.”

After months of worrying about whether their investments might be banned, some Indian individual investors said they felt relieved.

Sachit Gupta, a 28-year-old food delivery business owner in Kolkata, said he had been investing small amounts in cryptocurrency beginning in mid-2021, a time when many other young Indians piled into the market.

Gupta’s investor friends were all relieved by Tuesday’s announcement, which sent several cryptocurrencies skyrocketing in value on Indian markets by late afternoon. Gupta, too, was preparing to buy more crypto after the announcement, he said.

“People are very happy today,” he said. “If I can earn money from it, I don’t mind paying the tax.”

Anant Gupta contributed to this report.

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