As the Union Budget 2024-25 approaches, the cryptocurrency industry in India has set forth several key expectations. These include a reduction in transaction taxes, the ability to offset losses, equal treatment of capital gains from crypto assets with other income sources, and the establishment of a supportive regulatory regime.
These measures aim to foster innovation and create a conducive environment for the growing digital economy.
Suggested Cryptos to Buy in 2024, click here
Current Taxation and Its Impact
The Budget 2022-23 introduced significant regulations for virtual digital assets (VDAs), mandating a flat tax rate of 30% on gains from these assets. Additionally, a 1% tax deducted at source (TDS) was imposed on every transfer of such assets.
Despite these regulations, the legality of VDAs remains unclear, which continues to be a significant concern for the industry.
Key Expectations for Budget 2024-25
Reduction of TDS on Transfers
One of the primary requests from the crypto community is to reduce the TDS rate on the transfer of VDAs under Section 194S to 0.01%. The current TDS rate of 1% acts as a deterrent for investors, reducing market liquidity and participation. Lowering the TDS rate is expected to encourage more transactions, creating a healthier trading ecosystem.
Also, there is a call to revise the threshold limit for tax deduction under Section 194S, increasing it from ₹50,000 to ₹5,00,000.
Read Also: Bitcoin at Four-Month Low: Why is the Crypto Market Down Despite Market High
Setoff and Carry Forward of Losses
The crypto community advocates for the ability to offset and carry forward losses, similar to other financial sectors. Currently, losses from trading VDAs cannot be carried forward to offset future gains from VDAs or other income sources. This limitation discourages long-term investment and strategic trading.
Allowing this flexibility would align the crypto market with other financial markets, promoting a more stable and investor-friendly environment.
Equal Treatment of Income from VDAs
Another significant demand is to treat income from the transfer of VDAs on par with traditional income sources, such as stocks or mutual funds. Recognizing and taxing crypto income similarly would simplify tax compliance for investors and help legitimize cryptocurrency as a mainstream asset class.
Amending Section 115BBH to reduce the tax rate from 30% to a rate comparable with other industries would be a welcome improvement.
Need for a Regulatory Body
In addition to financial adjustments, there is increasing advocacy for establishing a dedicated regulatory body to oversee crypto transactions. Such an institution would ensure transparency, protect investors, and provide clear compliance guidelines, thereby fostering trust and stability in the market.
The establishment of a regulatory framework under bodies like SEBI or RBI can help mitigate risks and ensure India remains competitive in the evolving global market.
Challenges and Implications
While the industry welcomed the definition and inclusion of VDAs in the Income Tax Act, certain provisions—such as the high TDS rate and the lack of offset have led many Indian VDA users to migrate to non-compliant foreign exchanges for trading. This puts them at risk of losing their investments and breaking the law, resulting in reduced tax revenues for the exchequer.
The RBI’s June 2024 Financial Stability Report (FSR) highlighted the implications of Decentralised Finance (DeFi) for financial stability, aligning with global regulatory efforts to create a secure and stable environment for digital assets. Incorporating these insights by establishing a robust regulatory framework can help mitigate stability risks in the DeFi and digital asset space.
Industry Hopes and Government Response
The crypto community remains hopeful that the Ministry of Finance will consider these proposals, leading to positive outcomes in the Union Budget 2024-25. Implementing changes such as reducing TDS and allowing the setoff and carry forward of losses would encourage broader participation in the crypto market.
A supportive regulatory environment is crucial for stimulating innovation, as it empowers the industry to transform existing businesses through the integration of blockchain technology.
Conclusion
As the Union Budget 2024-25 approaches, the cryptocurrency industry in India eagerly awaits reforms that could foster a more conducive environment for digital assets. Reducing transaction taxes, allowing the offset and carry forward of losses, and establishing clear regulatory guidelines are critical steps that can stimulate innovation and growth in the sector.
The government’s response to these expectations will significantly influence the future trajectory of the crypto market in India.
People May Ask
What are the current tax regulations for cryptocurrencies in India?
The current regulations mandate a flat 30% tax on gains from virtual digital assets and a 1% TDS on every transfer.
Why is the crypto industry seeking a reduction in TDS?
The high TDS rate of 1% reduces market liquidity and participation. Lowering it to 0.01% would encourage more transactions.
What does the crypto community want regarding losses from VDAs?
The community wants the ability to offset and carry forward losses from VDAs to promote long-term investment.
How would equal treatment of VDA income with other income sources help?
It would simplify tax compliance and legitimize cryptocurrency as a mainstream asset class.
Why is there a call for a dedicated regulatory body for crypto?
A regulatory body would ensure transparency, protect investors, and provide clear compliance guidelines.
What impact has the current tax framework had on VDA transactions?
High TDS rates and lack of clarity have driven many users to offshore platforms, reducing tax revenues.
How can the establishment of a regulatory framework benefit the market?
It would mitigate stability risks and ensure India remains competitive in the global market.
What are the industry’s hopes for the Union Budget 2024-25?
The industry hopes for reduced TDS rates, the ability to offset losses, and the establishment of a supportive regulatory regime.
How has the RBI’s Financial Stability Report influenced expectations?
The report highlights the need for a secure and stable environment for digital assets, aligning with global regulatory efforts.
What is the significance of these expected reforms?
These reforms are crucial for fostering innovation, encouraging investment, and ensuring the growth of the digital economy.
