Regulation
India unlikely to see cryptocurrency tax cut in Tuesday’s budget
India is unlikely to change its controversial tax deduction at source (TDS) policy on crypto transactions when Finance Minister Nirmala Sitharaman unveils her full budget for 2024-25 on Tuesday, experts said.
The budget is the first since Prime Minister Narendra Modi was elected for a third consecutive term. The difference this time is that Modi’s Bharatiya Janata Party (BJP) has unexpectedly announced failed to obtain a majoritywhich is to form a coalition government. The budget is likely to take into account its alliance partners, who have already demanded more $15 billion over the next few years.
For the cryptocurrency industry, the TDS is a major issue. The Bharat Web3 Association (BWA) has been calling for the tax to be reduced from 1% to 0.01% since it was announced two years ago. The industry body presented data from multiple sources, including a think tank study that provided evidence to support a reductionAmong other arguments, he claims that reducing the rate would allow more transactions to be kept within the national territory, which would result in higher revenues for the government.
“I don’t foresee the 1% TDS being reduced in the short term, even if it is necessary,” said Punit Agarwal, founder of crypto tax platform KoinX. “The current rate is leading to capital flight to international exchanges and DEXs, which ultimately results in a loss for the government.”
Despite the surprise election result that introduced the need to satisfy coalition partners and Last week’s $230 million hack of crypto exchange WazirX, which may have pushed crypto down the priority list, BWA officials said they were hopeful that at least one of their three requests would be successful.
The BWA is also seeking “regulatory direction.” India does not have comprehensive regulations on cryptocurrencies, although senior finance ministry officials have said they intend to introduce a bill in Parliament.
What gives them hope is that the association was invited for discussions with the ministry as part of the pre-budget consultations, unlike in 2023 before the interim budget in February. However, ministry officials “did not give us any insight or feedback,” said R Venkat, a member of the Bharat Web3 association who attended the meeting. The finance ministry declined to comment.
“The high TDS may have pushed retail investors towards offshore exchanges, but the government’s focus on strict regulation suggests that a rate cut is unlikely,” said Rajat Mittal, crypto tax advisor to the Supreme Court. “The need for stringent oversight in the digital asset space is considered more important than easing industry concerns.”
CORRECTION (July 22, 12:01 UTC): Corrects the penultimate paragraph to remove the reference to 2022.