India’s Budget Likely to Maintain Current Crypto Tax Rates

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As an experienced financial analyst with a deep understanding of the Indian crypto market and its regulatory landscape, I believe that while the reduction of the 1% TDS on crypto transactions remains a significant demand from the industry, it is unlikely to be addressed in the upcoming budget due to the current political climate and recent events such as the WazirX hack.

I believe India will continue with its controversial tax policy on cryptocurrency transactions, given the upcoming 2024-2025 budget presentation by Finance Minister Nirmala Sitharaman on Tuesday.

In this budget, we reach a notable milestone as it’s the initial one since Prime Minister Narendra Modi earned a third consecutive term in office. However, there’s a unique aspect to this victory – the Bhartiya Janata Party (BJP), led by Modi, fell short of a clear majority, resulting in the requirement for a coalition government. The shifting political terrain could have an impact on budgetary choices, particularly as alliance partners put forth demands totaling over $15 billion in the near future.

In the rapidly growing crypto sector, the 1% Tax Deducted at Source (TDS) on crypto transactions is a significant concern. Since its establishment two years ago, the Bharat Web3 Association (BWA) has consistently championed for lowering this tax to just 0.01%.

The BWA advocates for reducing the Transaction Development Fees (TDS) based on evidence from diverse resources, such as a think tank report, which supports the claim that this move would result in more domestic transactions and increased government income.

“Punit Agarwal, the founder of crypto taxation platform KoinX, expressed his view that the 1% TDS (Tax Deduction at Source) is unlikely to be decreased soon. He emphasized that this rate results in investors moving their funds to foreign exchanges and decentralized exchanges (DEXs), resulting in potential revenue loss for the government.”

India’s Budget Likely to Maintain Current Crypto Tax Rates

The cryptocurrency sector is advocating for several changes in taxation policies beyond TDS reduction. One proposal is to replace the current flat 30% tax rate on crypto gains with a progressive tax system, where the tax rate increases as the gain amount grows. Another suggestion is to enable the use of losses to offset gains, known as tax-loss harvesting. Additionally, there’s growing support for establishing a unified regulatory framework involving multiple agencies to ensure effective oversight of the industry.

The latest election outcomes and the massive $230 million hack of WazirX crypto exchange last week could potentially move cryptocurrencies lower on the agendas of governments due to their pressing concerns. The magnitude of this cyberattack has left the crypto community in disbelief. Consequently, both stakeholders might place more emphasis on regulatory compliance to strengthen security measures.

Despite the challenges, BWA officers remain positive that one of their key demands will be met. Their confidence stems from the fact that they were invited to participate in pre-budget discussions with the Finance Ministry for the first time since 2022.

“According to Rajat Mittal, a legal advisor at the Supreme Court, the high total debt servicing (TDS) levels may have pushed retail investors towards international cryptocurrency exchanges. However, the government’s commitment to strict regulations indicates that interest rate reductions are unlikely. Instead, the priority is on enhancing regulatory oversight in the digital asset sector.”

In spite of the Finance Ministry not providing clear guarantees, the cryptocurrency community remains optimistic that the ongoing talks will lead to more advantageous policies. With a draft bill for extensive crypto regulation set to be presented to parliament, there is a cautious sense of anticipation for a more equitable stance towards the digital asset industry.

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2024-07-22 15:16