India to Bring Laws on Crypto Taxations, RBI Deputy Raises CBDC-Related Concerns Before IMF

The month of July could bring along some reforms for the crypto industry in India, essentially aiming at effective tax administration of virtual digital assets (VDAs). India's Central Board of Direct Taxes (CBDT) has been assigned with the task of framing appropriate guidelines, that will also provide clarification around what qualifies as a VDA. While the finance ministry remains tight-lipped on the upcoming crypto tax reforms, the development also comes at a time when the RBI deputy governor T Rabi Sankar has voiced his distress around CBDCs before the International Monetary Fund (IMF).

Rabi Sankar happened to place India's United Payments Interface (UPI) on a higher pedestal than the blockchain technology while speaking at the webinar series on digital technologies.

“Blockchain, which was introduced six-eight years before UPI started, even today is being referred to as a potentially revolutionary technology. [Blockchain] use cases haven't really been established that much at the speed it initially was hoped for,” the RBI governor said in his statement.

He also stated that stablecoins pegged to fiat currencies should not be accepted blindly as a mode of payment. Stablecoins were recently recognised as part of UK's financial systems.

“A currency needs an issuer or it needs intrinsic value. Many cryptocurrencies which are neither are still being accepted at face value. Not just by gullible investors but also the experts, policymakers or academicians.” Rabi Sankar noted.

The RBI deputy governor has predicted that CBDCs could end-up killing the use cases of ‘private cryptocurrencies'.

India is expected to get its Digital Rupee CBDC in the 2022-2023 fiscal year.

Meanwhile, the government of India is not looking to offer any relaxation on the 1 percent tax deduction at source (TDS) that is levied on the transfers of virtual digital assets despite requests from industry players.

India is yet to get its legal framework around crypto, that will align with the nation's monetary policies, existing payment systems, as well as the tax rules put in place earlier this year.

India is not looking to take a hasty decision in-terms of announcing its crypto laws, finance minister Nirmala Sitharaman had said during the 2022 Spring Meeting held in the US this April.

Lawmakers engaged in drafting India's VDA rules have reportedly been consulting industry stakeholders and international agencies such as the IMF as well as the World Bank among others.

Meanwhile, despite looming regulatory uncertainties, crypto players from other parts of the world are flocking to set up shop in India.

Earlier in May, global cryptocurrency tax compliance and portfolio tracking firm CoinTracker announced its entry into Indian shores. It aims to help crypto users wade through tax complexities and gauge deductions with ease.

Venture capital giant Andreessen Horowitz (a16z) is alsoc looking to invest an amount in the ball-park of $500 million (roughly Rs. 3,825 crore) in India's growing crypto-startup ecosystem.

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