Regulation
India’s budget is likely to maintain current crypto tax rates
India is set to retain its controversial withholding tax (TDS) policy on cryptocurrency transactions, experts say, as Finance Minister Nirmala Sitharaman prepares to present the Budget 2024-25 on Tuesday.
This budget marks a significant moment, as it is the first since Prime Minister Narendra Modi secured a third consecutive term, albeit with a twist: his Bhartiya Janata Party (BJP) failed to secure a majority, necessitating a coalition government. This new political landscape could influence budget decisions, especially with alliance partners demanding more 15 billion dollars in the next few years.
For the burgeoning cryptocurrency sector, the 1% TDS on cryptocurrency transactions remains a pressing issue. The Bharat Web3 Association (BWA) has been persistently advocating for the reduction of this tax to 0.01% since its inception two years ago.
BWA’s efforts include presenting compelling data from various sources, including a think tank study, which argue that a lower TDS would keep more transactions onshore and increase government revenue.
“I don’t see the 1% TDS being cut anytime soon, despite the need,” said Punit Agarwal, founder of cryptocurrency taxation platform KoinX. “The current rate leads to capital flight to global exchanges and DEXs, ultimately causing a loss for the government.”
Image Source: Bharat Web3 Associaton about pushing multi-agency regulation
In addition to the TDS reduction, the crypto industry is pushing for progressive taxes on profits instead of the flat 30% rate and allowing losses to offset gains. There are also calls for a multi-agency regulatory framework to better manage the sector.
The recent election results, along with those of last week, $230 Million Hack at WazirX Cryptocurrency Exchangemay have moved cryptocurrency further down the government priority list. The scale of this hack has left the cryptocurrency community in shock. In response, both the community and the government may focus more on regulatory compliance to improve security.
However, BWA officials remain optimistic that at least one of their three main demands will be addressed. The association’s hope is fueled by the fact that it has been included in pre-budget consultations with the Ministry of Finance, a first since 2022.
“The high TDS may have pushed retail investors to offshore exchanges, but the government’s focus on stringent regulation suggests that rate cuts are unlikely,” said Rajat Mittal, a crypto tax advisor to the Supreme Court. “The need for robust oversight in the digital asset space is seen as more critical than easing industry concerns.”
Despite the lack of direct reassurance from the Ministry of Finance, the crypto community is hopeful that the discussions will pave the way for more favorable policies. With the draft bill on comprehensive cryptocurrency regulation expected to be presented to parliament, there is cautious optimism for a more balanced approach to the digital asset sector.
Read also: Indian Budget 2024-25: What Can the Crypto Community Expect?