As India prepares for the Union Budget 2024-25, stakeholders in the cryptocurrency industry are hopeful for substantial tax reforms that could bolster digital innovation and investment within the country.
Ashish Singhal, co-founder of CoinSwitch, recently discussed the need for a more supportive regulatory and tax environment with Cryptopolitan.
Urgent need for tax regulation overhaul
The current tax framework governing Virtual Digital Assets (VDAs) was established in February 2022, introducing a 30% tax on cryptocurrency earnings and a 1% Tax Deducted at Source (TDS) on all crypto transactions. However, Singhal points out that this regime has pushed domestic crypto traders to international platforms, complicating the government’s ability to monitor these transactions effectively.
With India’s general elections concluded in June and Prime Minister Modi securing a third term albeit without an absolute majority, the crypto community sees this as a pivotal moment for legislative change. “With a new government in place, a reevaluation of the VDA tax treatment in the July 2024 Union Budget would be very timely to capitalize on India’s Web3 opportunity,” Singhal added.
Recommendations for tax reductions
One of Singhal’s primary recommendations is to lower the TDS rate on VDA transfers from 1% to 0.01% under Section 194S. He argues that such a reduction would increase tax compliance and oversight and prevent capital flight by keeping more transactions within the domestic market.
Additionally, Singhal advocates for the crypto sector to have provisions for offsetting losses, akin to other tech-enabled industries, to encourage responsible trading and minimize tax evasion risks. The community also calls for reducing the flat 30% tax rate applied to incomes from VDA transfers, proposing instead a rate that aligns more closely with other sectors within the digital economy.
Crypto’s impact on India’s economy
The potential for the crypto industry to significantly contribute to India’s economy is substantial. The government aims for the technology and digital economy sectors to make up 20-25% of the GDP by 2025-26, while current contributions are about half of this target.
According to Statista, the crypto market in India could generate $343.5 million in revenue in 2024, with projections increasing to $467 million by 2028. Additionally, from July 2022 to June 2023, India ranked as the second-largest country in transaction volume, with an estimated $268.9 billion.
Singhal also suggests reevaluating the income thresholds for crypto taxability, which currently stand at Rs 10,000 / Rs 50,000. Increasing these thresholds could reduce the tax department’s administrative burden and facilitate refund processing.
As the 2024 Union Budget approaches, the crypto sector remains optimistic about potential regulatory reforms that could ease tax burdens and foster growth within the industry. Such changes could also be crucial in advancing India’s broader economic goals, including its ambition to become a $ 5 trillion economy by 2027-28.