Indian regulators are leaning towards prohibiting private cryptocurrencies like Bitcoin and Ethereum, stressing the advantages of Central Bank Digital Currencies (CBDCs).
According to recent reports from The Hindustan Times, key government institutions consulted on cryptocurrency regulation favor a ban. The institutions cited that CBDCs can provide similar benefits with reduced risks.
Government’s position on crypto and CBDCs
According to officials who pleaded anonymity, recent consultations have concluded that the risks of private cryptocurrencies are more than their benefits.
“CBDCs can do whatever cryptos do. In fact, CBDCs have more benefits than cryptos, minus the risks associated with private cryptocurrencies,” one official stated.
The government’s position aligns with India’s adoption of the synthesis paper by the International Monetary Fund (IMF) and Financial Stability Board (FSB) in September 2023. Officials note that the IMF-FSB paper proposes minimum regulatory thresholds. They also stated that it doesn’t prevent countries from implementing stricter measures like complete bans.
Reserve Bank of India (RBI) Governor, Shaktikanta Das, recently emphasized CBDC’s potential for financial inclusion during a conference in Bengaluru. The digital rupee (e₹), India’s CBDC, has already gained over 5 million users. In addition, 16 banks have participated since its pilot launch in late 2022.
The State Bank of India (SBI) has begun exploring CBDC applications. They even launched a pilot project in Odisha and Andhra Pradesh for lending to tenant farmers through programmed end-use credits.
India’s crypto stance over the years
India’s stance on cryptocurrency has changed greatly since 2013, when the RBI issued its first warning about virtual currencies. Ever since, the country has taken several actions and made regulatory changes.
The 2016 demonetization boosted crypto investments as digital payments gained popularity. However, in April 2018, the RBI imposed a ban on banks facilitating cryptocurrency transactions. This greatly affected the trading volumes and market activity.
A major shift occurred in March 2020 when the Supreme Court of India lifted the RBI’s ban, declaring it unconstitutional. This ruling allowed crypto exchanges to resume operations and started renewed trading activity.
Subsequently, the government proposed a new bill to regulate cryptocurrencies. At the same time, they ensured to distinguish between private cryptocurrencies and state-issued digital currencies.
Crypto is not a legal tender in India
Currently, cryptocurrencies are not classified as legal tender in India. However, the country has established a tax framework for cryptocurrencies.
Crypto is officially classified as Virtual Digital Assets (VDAs) since the 2022 budget. This framework includes a 30% tax on profits from trading, selling, or spending cryptocurrencies.
This is regardless of whether the income is classified as capital gains or business income. Additionally, a 1% Tax Deducted at Source (TDS) applies to all crypto transactions exceeding INR 10,000 in a financial year.
Even though blockchain technology’s potential for socially beneficial purposes is recognized, the government maintains a cautious stance toward private cryptocurrencies.
The government plans to expand the scope of CBDC gradually after analyzing data from ongoing pilot projects. The final decision on cryptocurrency regulation will be made after extensive consultation. But the current stance suggests a strong preference for CBDCs over private digital assets.
