Cryptocurrency will never be a legal tender, Finance Secretary TV Somanathan said on Thursday, February 3, clearing the air on the legality of private digital currencies in the market. The 2022-23 Union Budget has given a clarity on taxation of virtual digital assets and proposed to impose a 30% tax on gains made on such trades, besides subjecting crypto transactions beyond a threshold to 1% TDS (Tax Deducted at Source).
In an interview with PTI, Somanathan said that just like gold and diamond, despite being valuable, are not a legal tender, private cryptocurrencies too will never be a legal tender. "Crypto will never be a legal tender. Legal tender means by law it is accepted in settlement of debts. India will not be making any crypto asset as a legal tender. Only 'Digital Rupee' of the Reserve Bank will be a legal tender in India," Somanathan said.
Except El Salvador, which in September last year adopted Bitcoin as legal tender, no other country has made crypto a legal tender. India is working on legislation to regulate cryptocurrencies, but no draft has yet been released publicly. Meanwhile, a central bank-backed digital currency will start circulating in the next fiscal to usher in cheaper, more efficient currency management.
From April 1, 30% tax will have to be paid on income from cryptocurrencies. Income tax return form from next year will have a separate column to declare gains from crypto. Asked why the government has not listed private crypto regulation Bill for the ongoing Budget session, despite listing it in the previous winter session in December, Somanathan said, "It was felt that wider consultation is necessary before the legislation is brought on what should be the nature of regulation; should there be a regulation or should it be only taxation".
The government had listed for introduction, the 'Cryptocurrency and Regulation of Official Digital Currency Bill' for regulating cryptocurrencies in the previous session of Parliament. The Bill comes amid concerns over such currencies being allegedly used for luring investors with misleading claims. Currently, there is no regulation or any ban on use of cryptocurrencies in the country.
"We are in a democracy. In a democracy, the government starts with something but then there is feedback. Government is listening to that feedback, based on that feedback they are yet to come to a final conclusion on how it should be done. Meanwhile, the questions of tax clarity cannot wait forever because volumes have become very large," Somanathan said.
He further said that regulation of cryptocurrencies will have to take into account the international consensus since there would be cross-border transactions. "Some international elements will have to be tied up to make the regulation effective. All those consultations are on," the finance secretary said.
The crypto market in India grew 641% in the year through June 2021, according to an October report by industry research firm Chainalysis. As the country keeps pace with the global move towards virtual financial instruments, the Union Budget has also announced that India's central bank will launch 'digital rupee' in the next fiscal.