View | The influence of CBDC and crypto tax on millennial investors


A few decades ago, fixed deposits (FDs) were India’s preferred investment instruments. But with interest rates on FDs declining in years past to levels not even enough to combat rising inflation rates, they have quickly lost popularity. For the fear of losing the value of money, millennials have since started dabbling in other forms of investment. This trend saw a big uptick in 2019.

COVID-19’s impact on markets

The pandemic brought a huge wave of investors into the stock market. The Fed rates were low, the market was buoyant, and there was a huge inflow of foreign investments in the Indian market. Plus, the stretched-out work-from-home situation saved the salaried class rent and travel expenses. With all these stars aligned perfectly, the stock market and the cryptocurrency market saw a huge boom in Indian investors, most of whom were millennials. Data also shows that Indian investment into the US grew more than 200 percent year-on-year in 2021.

This was conclusive proof that people were open to — A) Actively investing in places that are not ‘traditional’ and B) Jumping onto the digital bandwagon since they used fintech apps to invest in both these markets.

Crypto investments

While both these markets satisfied investor needs, the nascent crypto market wasn’t recognised by the government. Budget 2022-23 introduced a crypto tax of 30 percent on gains and TDS on certain crypto transactions. The announcement officially recognised digital assets, which is good news for crypto enthusiasts.

While it is not clear whether the losses in crypto can be offset by the gains to compute taxable amounts, millennials hope that this would be the case so that only net gains are taxable. The other requirement is that a TDS (advance tax) of 1 percent will apply to considerations of Rs 50,000 for specific individual players and Rs 10,000 for others. While crypto exchanges would have to simplify this to aid the users, this requirement could discourage short-term crypto trades.

Impact on millennials, and the Digital Rupee

New developments in the crypto space will likely push many millennials further into the stock market, and the volume of crypto investments would reduce in the coming years. The Budget also reduced the long-term capital gains (LTCG) surcharge by capping it at 15 percent. This helps make the stock market a place for long-term investments as opposed to a place to make a quick buck at.

Now coming to the other big announcement — the government’s plans to launch the Digital Rupee.

As mentioned earlier, the confluence of all the factors responsible for bringing in the boom of millennial investors in both markets was aided by the digital revolution of fintech apps. People not only need convenience in their daily lives, now they demand it. This is one reason why the central bank digital currency (CBDC) is being introduced by the government.

CBDC is a natural progression of money into its digital form, giving a boost to the digital economy. Depending on the implementation, CBDC can be more decentralised and even anonymous. It also drastically improves the convenience of handling money. The merchant fees associated with credit and debit card payments, that are indirectly levied to customers, would also not apply to CBDC payments.

In addition to all this, CBDC aids simpler and less costly cross-border payments. This would have a huge impact on millennial investment and saving behaviour. For instance, if someone is saving up for a US master’s degree, they could save in USD saving instruments and mitigate currency risk. Investment in global markets also become more accessible owing to the cheaper transaction cost.

Whether or not the digital Rupee will be built on blockchain is still unclear. However, the private sector participants can work with the Central bank to build their services on top of the CBDC infrastructure. With the web of fintech cropping up, it could also make saving and investing simpler in the future.

— The author, Sumit Gwalani, is Co-Founder of Fi, a neo-bank. Views expressed here are personal.



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