India is introducing a state-backed digital rupee and a 30 percent tax on profits from virtual currencies, the government has announced.

These plans deal a blow to one of the fastest growing crypto markets in the world, which remains unregulated despite growing local trading platforms and brilliant celebrity endorsements.

There has been a phenomenal increase in virtual digital asset transactions, Finance Minister Nirmala Sitharaman told Parliament, adding that the growth requires a proper tax base.

Profits earned from trading cryptocurrencies and other digital assets will be taxed at a rate of 30 percent, and any losses from digital transactions will not be offset by other income. A tax of one percent will be deducted at source on all digital asset transactions that exceed an as yet unspecified threshold.

Sitharaman also stated that by the end of March 2023, the central bank will introduce a digital rupee based on blockchain technology. The introduction of a central bank digital currency will give a big boost to the digital economy. The digital currency will also lead to a more efficient and cheaper currency management system, she said.

Cryptocurrencies have been under intense scrutiny from Indian regulators since their first entry into the local market almost a decade ago, when a surge in fraudulent transactions led to their ban by the central bank in 2018. Two years later, India's Supreme Court overturned the ban, and since then, the market has grown nearly 650 percent in the year to June 2021, second only to Vietnam.