India will launch a state-backed “digital rupee” and impose a 30% levy on profits from virtual currencies, the government announced on Tuesday.
The plan is a blow to one of the fastest growing cryptocurrency markets, which has been largely unregulated despite the explosive rise of local trading platforms.
With the new measures, India became the latest emerging economy to rein in the sector, after China banned all cryptocurrency transactions in September.
“There has been a phenomenal increase in transactions in digital virtual goods,” said Finance Minister Nirmala Sitharaman, presenting the public budget to parliament. He added that this growth requires an adequate tax framework.
Profits from operations in cryptocurrencies and other digital assets will be taxed at 30%, while losses cannot be offset against other income.
Sitharaman also announced that the central bank will launch a “digital rupee” based on blockchain technology by the end of March 2023.
“The introduction of the central bank’s digital currency will give a strong boost to the digital economy. The digital currency will also lead to a more efficient and cheaper monetary management system,” the minister added.
Cryptocurrencies have been under the scrutiny of Indian regulators since entering the local market nearly a decade ago, with a surge in fraudulent transactions leading to a central bank ban in 2018.
India’s Supreme Court lifted the ban two years later and since then the market has exploded, growing nearly 650% in the 12 months to June 2021, according to research by company Chainalysis.
Prime Minister Narendra Modi warned last year that bitcoin is a risk to the young generation.
His government subsequently considered banning “all private cryptocurrencies,” but ultimately gave up.