As an analyst with a background in economics and experience in the Indian financial market, I believe that the recent study conducted by NALSAR Hyderabad on the potential revenue loss due to stringent taxation policies on virtual digital assets (VDAs) or cryptocurrencies in India is an important wake-up call for the Indian government. The findings of the report are alarming and suggest significant losses for both the Indian exchequer and crypto enthusiasts within the country.
New research indicates that the Indian administration could pocket approximately $615 million just by eliminating the 1% Tax Deducted at Source (TDS) requirement for each transaction involving Virtual Digital Assets (VDAs) within India.
India currently implements one of the most rigid tax structures for cryptocurrency assets globally, imposing a 30% tax on any realized profits and a 1% Tax Deducted at Source (TDS) on every transaction. As Prime Minister Narendra Modi commences his third term, optimistic crypto advocates in India anticipate potential relaxation of crypto regulations in the proposed budget for the fiscal year 2025-26.
A study carried out by NALSAR Hyderabad, India’s leading law institute in collaboration with cryptocurrency advocates, asserts that harsh tax regulations implemented by the government towards cryptocurrencies have led to a significant revenue loss for the treasury and may discourage numerous crypto supporters within the nation. Data from the top six crypto exchanges in India, collected between February 2022 and January 2024, is incorporated into the research findings.
The study reveals four major insights. Firstly, they estimate that the Indian government may have incurred losses amounting to $300 million between February 2022 and January 2024. Moreover, there is a projected revenue loss of approximately $615 million due to the implementation of the 1% Tax Deduction at Source (TDS) policy. Furthermore, this research suggests that the TDS policy has resulted in substantial losses on Indian cryptocurrency exchanges and triggered a mass migration of crypto enthusiasts towards offshore platforms, beyond the regulatory purview of the Indian administration.
According to the report, cutting the Tax Deducted at Source (TDS) rate from 1% to 0.01% could potentially double the tax revenue for the upcoming fiscal year. Additionally, the report highlights a concerning decrease of 81% in active users in the year 2023. This indicates that a large number of investors are presumably switching to international platforms due to heavier tax obligations and stringent regulations in their home countries.
Additionally, the report points out that relaxing the Tax Deducted at Source (TDS) regulations would lessen administrative hassles, bolster investor trust, and encourage innovation in the rapidly expanding cryptocurrency sector.
In simpler terms, the crypto community in India has submitted this paper with the hope of securing leniency on cryptocurrency taxation regulations.
India’s cautious response to crypto
As a researcher studying the Indian finance sector, I’ve observed consistent demands for tax policy reforms. However, the finance ministry has remained cautious in their response, avoiding any clear indications of impending changes to existing tax laws. Amidst ongoing debates and uncertainties, Finance Minister Nirmala Sitharaman has reaffirmed her stance on cryptocurrencies. She intends to classify them as assets instead of legal tender, a decision intended to preserve market stability.
The industry is facing hesitance, leading to apprehension as to how this may impact the sector. Notably, key players argue that decreasing taxes on cryptocurrencies could foster expansion and bring Indian regulations in line with international norms.
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2024-06-24 12:36