The Union Budget 2022 while recognizing and defining cryptos as an asset class for the first time also introduced a three-pronged tax provision on their transactions. A high rate of 1% Tax Deducted at Source (TDS) on transfer of Virtual Digital Assets (VDAs), a flat 30% tax on gains and disallowing offsetting and carry forward of losses have had unintended consequences on the burgeoning Web3 sector in India.
Some empirical studies point to a massive shift in Indian VDA users to non-compliant offshore virtual asset exchanges to trade, putting themselves and their investments at risk. Such large volumes of VDA activity by Indian users remaining outside the government radar can also potentially impact anti-money laundering and terror-financing investigations and enforcements.
The Interim Budget 2024 is a fresh opportunity for the government to balance the need to have oversight on the VDA sector and also support the growth and expansion of Web3 in India. If the intention was to track all VDA transactions with 1% TDS, the same can be achieved even with 0.01% rate. Even more now, as all VDA transactions have come under the ambit of the Prevention of Money Laundering (PMLA) Act and Rules from March 2023. Several Indian exchanges including CoinSwitch are registered with the Financial Intelligence Unit to fully comply with India’s AML/CFT rules.
Besides reducing the rate of TDS, the government should consider allowing offsetting of losses with VDA gains and treating income from VDAs on par with other capital assets.
Today, more than 80% of the G20 and major financial hubs are providing increasing regulatory clarity on crypto. Recognizing the growing momentum for crypto assets in India and building on its leadership position in the G20, the Government should also announce a robust regulatory framework for VDAs in the upcoming Budget.
At CoinSwitch, we have consistently advocated for a friendlier tax regime and a robust regulatory framework that would foster responsible innovation and shield consumers. This will be the foundation on which India can build a global Web3 hub and help realize the nation’s $5-trillion GDP goal by 2027-08.
We have put together this ready-reckoner of our Interim Budget 2024 wishlist, and the rationale behind it here: Budget 2024 Wishlist
