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The Indian government’s long-standing fight against cryptocurrencies has shown that the government is not ready to face the idea of banning the use of cryptocurrencies as it was announced in 2019.
A large number of users of cryptocurrencies as well as their activity in the market means that India is one of the leading countries in the world where cryptocurrencies are used in the market, which influenced the change of opinion of the authorities regarding the ban on cryptocurrencies.
India’s lower house of parliament has announced earlier, plans for a bill that will ban all “private cryptocurrencies” from operating in the country. This would also be applied upon the popular cryptocurrencies, such as Bitcoin, Ethereum, Tether,USD coin…
Instead, the parliament now wants to propose the preparation of a framework that will enable the creation of official digital money, under the auspices of the Bank of India. As some reports say India’s Central Bank will introduce a “digital rupee” based on blockchain technology by the end of March 2023. In India, only the Reserve Bank’s ‘Digital Rupee’ would be considered legal money.
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How customer interest changed policy?
The digital rupee will be the digital version of physical cash issued by the RBI and will, therefore, be sovereign backed. On the other hand, cryptocurrencies are not backed by a government / central bank and can be an asset class or a payment mechanism.
India rejected cryptocurrencies as legal tender back in 2018 and recommended a ban on existing digital money with prison sentences of up to 10 years for violators. The central bank then claimed that the currency was not real. The Supreme Court reversed that decision in 2020 and allowed cryptocurrency trading.
Cryptocurrency emerged in India for the first time around 2009 in the form of Bitcoin. The first commercial transaction occurred in 2010, followed by the first cryptocurrency exchange in 2013. It has garnered a significant following and interest in India over the past few years.
Losses and unclear policies prompted crypto exchange founders to leave India. Currently, the largest cryptocurrency exchange is WazirX, reports say that co-founders of WazirX have moved to Dubai with their families, unofficially, due to the unclear policy of cryptocurrencies.
Now, approximately 15–20 million investors are holding more than $5.3 billion in crypto in India, according to a Reuters report, citing industry estimates, representing the second-largest number of crypto traders worldwide.
The Reserve Bank of India, which has expressed “serious concerns” about private cryptocurrencies, was supposed to launch its CBDC by December 2021.
Official figures are not available, but industry estimates indicate that there are 15-20 million crypto investors in India, with total crypto investors of around €4.77 billion.
Advantages of Digital Rupee in India:
- Supported by the government and RBI, which will mitigate the risk of instability.
- No physical damage.
- Efficient transfers
- Low transaction costs
Disadvantages of Digital Rupee:
- Lack of technology adaptability due to technology heavy operation of currency adoption in India.
- The government controls its value
Taxation of cryptocurrencies in India
During the session of the Indian Parliament in 2021 Rajya Sabha, Finance Minister Nirmala Sitharaman stated that the government has not taken any concrete step to ban the use of cryptocurrencies in India, but will spread awareness about cryptocurrencies through the RBI and Sebi (Securities Board of India ).
In the Union Budget 2022-23, the government has categorically mentioned that the transfer of any virtual currency/cryptocurrency will be subject to a 30 per cent tax. Many investors welcomed this announcement because, according to them, the declaration itself was the first step in recognizing cryptocurrencies as legitimate assets.
This is after Supreme Court removed the ban on cryptocurrencies that was introduced in 2019.
Blockchain is full of potential not only in the field of payments but also in many other areas. Our intention is not in any way to harm the ecosystem or even say that we don’t need it,” said Sitharaman.
Sitharaman expressed concern that cryptocurrencies can be used for negative purposes and that terrorism can be funded through them.
She noted that, despite their potential to contribute positively to the economy, cryptocurrencies can also be used for “not very desirable purposes – whether it’s money laundering or terrorist financing.”
“So, these are some of the issues that concern not only India, but also many countries around the world, and are being discussed on global multilateral platforms,” said the Indian finance minister.
She then explained that the state needs to understand how cryptocurrency trading works and that the state was not ready at that moment.
Sitharaman explained that India needs to understand how cryptocurrencies should be promoted or how the government should “deal with” them and how the country needs time for all this.
India has introduced new provisions for taxation of the crypto sector, a steep 30% capital gains tax and a 1% withholding tax on almost all cryptocurrency transactions. High taxes and difficulties in calculating taxes and applying them pushed regular traders out of the crypto market.
As a result, India’s leading crypto exchanges saw a 92-98% drop in trading volume in the first 10 days of the new taxes compared to the same period last year, reports say.
Regular instant electronic retail payments through UPI are no longer available for this exchange. This has led to leading crypto exchanges such as CoinSvtich Kuber, WazirX and Coinbase to stop accepting deposits.
Currently, Cryptocurrencies are unregulated in India. Users of crypto currencies believe that the 30% fee is too high and that it is against the principles of law and natural justice. If a single gain is taxed, set-off of a loss from the same type of transaction should be allowed. Instead of banning cryptocurrencies, in which trading is like gambling, we got. is interested in tax collection. Many of the younger generations are losing hard.
Idea of Digital Rupee is encouraging Russia and China to create their own cryptocurrencies
The idea of a “digital Rupee” has prompted other countries like Russia and China to consider opening up their own digital currency.
The BRICS digital payments superstructure is taking shape with Russia’s central bank announcing plans to launch a “digital Rouble” in 2024. China’s eRMB is already in extensive trials and India expects to launch the digital Rupee within the next 18 months.
Many cryptocurrency investors believe that introduction of currencies such as the digital rupee will give a big boost to the digital economy, they say that the “Introduction of Central Bank Digital Currency (CBDC) they say that the establishment of this currency will lead to greater interest in the use of digital money in India.
Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce Digital Rupee in India, using blockchain.”
