India’s Finance Minister Nirmala Sitharaman upheld the current controversial crypto tax regulations during the budget announcement for the fiscal year 2024-2025.
Despite extensive lobbying from the cryptocurrency industry, which presented substantial evidence to advocate for a reduction in the tax-deducted-at-source (TDS) policy from 1% to 0.01%, the existing rules remain unchanged.
The cryptocurrency sector had also requested the government to introduce progressive taxes on gains instead of the existing flat 30% rate and to allow losses to offset gains.
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Crypto Space Was Hoping For Multi-Agency Regulation
Additionally, there were calls for the establishment of multi-agency regulation to provide a more comprehensive oversight framework.
“We were hoping for some relaxation to the taxation framework on VDAs (Virtual Digital Assets) in this budget, but the absence of any announcement is not particularly disheartening, given the government’s overall negative stance towards the sector,” stated Dilip Chenoy, Chairperson of the Bharat Web3 Association.
He added that the association would “continue to push for rationalization of the taxation framework.”
Crypto Leaders Emphasize on Multi-Agency Regulation!
As India’s Web3 landscape evolves, the Bharat Web3 Association (BWA) joins our member firms to push for multi-agency regulation. The complex nature of crypto assets demands a nuanced approach that single-regulator legislation
— Bharat Web3 Association (@BWA_Ind) July 4, 2024
Meanwhile, the government increased the long-term capital gains tax from 10% to 12.5% and the short-term capital gains taxes from 15% to 20%. The impact of these changes on crypto trading remains uncertain.
However, the removal of the angel tax for all classes of investors is seen as a positive step, likely to bolster the Indian startup ecosystem and attract more Web3 startups to the country.
“CoinDCX welcomes the Finance Minister’s announcement in today’s budget regarding the abolition of the angel tax for all classes of investors. We are confident that this will significantly bolster the Indian tech start-up ecosystem, especially in the Web3 sector,” commented Sumit Gupta, co-founder of Indian crypto exchange CoinDCX.
This budget marks the first since Prime Minister Narendra Modi secured a third consecutive term. With Modi’s Bharatiya Janata Party (BJP) failing to achieve a majority in the recent election, the need to form a coalition government has introduced new complexities and limitations.
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India’s 1% TDS Law Impact on Crypto Liquidity
Last year, Esya Centre, a Delhi-based technology policy think tank, published a report regarding the unintended consequence of India’s crypto regulations.
According to the report, Indian crypto investors have transferred over $3.852 billion (INR 32,000 crore) worth of digital assets to international crypto exchanges since the introduction of the 30% tax on crypto income last year.
The 1% TDS rule has notably diminished crypto liquidity in India, as high-frequency traders have drastically reduced their trading volumes to mitigate tax liabilities. Domestic exchanges saw an 81% drop in trading volumes within four months of the TDS rule’s implementation.
The think tank warned of a substantial negative impact on tax revenues and a decrease in transaction traceability, undermining the policy’s primary objectives.
The Esya Centre recommended that Indian authorities reduce the TDS from 1% per transaction to 0.1%, aligning it with the securities transaction tax, and adopt progressive taxes on gains instead of the flat 30% tax.
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Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
