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The Union Budget and the Central Bank Digital Currency
The announcement of the introduction of the central bank digital currency was the highlight of the union budget. However, in the absence of any specific official paper as of now, the treatment in the present article is largely speculative. Specifically, it looks at the possible technological and legal implications of the CBDC in light of other country experiences.
In recent times, terms like blockchain, cryptocurrency, bitcoin, and digital currency have invaded our vocabulary. After the initial restrictions on trading in cryptocurrencies like bitcoin being quashed by a three-judge bench of the Supreme Court on 4 March 2020, there was an exuberance in its trading with an explosion of crypto exchanges.1 Nevertheless, there are nagging questions in the minds of the investors and the general public about its presumed legality, all the more in view of the fact that the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is yet to be introduced in Parliament. It is in this context that the finance minister in her budget speech made two important announcements.
First, insofar as any virtual digital asset is concerned, she proposed that any income from transfers of any virtual digital asset shall be taxed at the rate of 30%. Furthermore, she added, “No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition,” and that “loss from transfer of virtual digital asset cannot be set off against any other income.” Additionally, in order to capture the transaction details, she proposed to provide for “tax deduction at source (TDS) on payment made in relation to transfer of virtual digital asset at the rate of 1% of such consideration above a monetary threshold.” Finally, gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.
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