After RBI warning, FM says crypto ban or legalisation after talks

Finance Minister Nirmala Sitharaman on Friday said that banning or not banning cryptocurrencies in India will come subsequently after consultations.

Replying to a question in the Rajya Sabha, the finance minister clarified that taxing crypto income does not mean that the government is legalising cryptocurrency. "Not doing anything to legalise or ban cryptocurrencies," she said while talking about the government’s decision to levy 30% tax on gains from virtual assets.

This comes a day after RBI governor Shaktikanta Das, in a press briefing post the monetary policy committee meeting, cautioned that private cryptocurrency is a big threat to India's macroeconomic and financial stability. "It is my duty to tell the investors who invest in cryptocurrencies to keep in mind that they are investing at their own risk,” he said. “They also need to keep in mind that the cryptocurrency has no underlying value, not even a tulip."

While imposing tax on crypto in her Budget speech, the finance minister had said, "There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime. Accordingly, for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30%."

While the crypto industry cheered the tax announcement in the Budget 2022 calling it "recognition" of virtual currencies by the Centre, the finance minister, in a post Budget presser, clarified, "A currency is a currency only when it is issued by the central bank, even if it is a crypto. Anything outside of that, what we refer loosely as cryptocurrencies, are not currencies."

"We are not taxing the currency (digital rupee) that is yet to be issued by RBI. Everything that prevails outside of it, in the name of digital, are assets being created by individuals. And if profits are being made by transacting those assets, we will tax them at 30%," she had said, adding that the government will impose a 1% tax deducted at source (TDS) on every transaction.

The crypto asset market in India is worth $15 billion and the Indian crypto community may have over six million people or 0.5% of the country's population, according to a report by CREBACO, a research firm focused on blockchain and cryptocurrencies.

NITI Aayog chief executive officer Amitabh Kant had earlier this month told Fortune India that the government is not banning cryptos. "Once you start taxing, it means you will have a regulatory mechanism, whether some aspect is regulated by RBI or Sebi. The Budget provides absolute clarity. Government has not banned cryptos. It has, in fact, treated crypto as an asset class, defined as a virtual digital asset," he had said.

In her Budget speech, Sitharaman announced the introduction of the Digital Rupee by the Reserve Bank of India (RBI) next fiscal. "It is proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23."