It has been just over a year since Finance Minister Nirmala Sitharaman’s Union Budget 2022 imposed a 30% fixed tax rate on all income generated through cryptocurrency trading.
With Budget 2023 set to be discussed on Wednesday, the cryptocurrency industry is calling on the government to take into consideration the importance of their industry, and to avoid furthering any damage it could suffer with punitive taxation measures.
As the government’s budget sets the tone for resource allocation and the tax rules, any changes made to the crypto sector will have a major impact. Last year, the introduction of a 30% tax on profits and a 1% tax deducted at source (TDS) on all crypto transactions sparked a huge outcry from the crypto sector.
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Rajagopal Menon, vice president at WazirX, tells Benzinga India he does not expect the status quo on crypto taxes in India. "The 1% TDS on all crypto transactions be reduced to 0.01%, as well as allowing taxpayers to set off losses against the 30% tax on gains." These necessary measures, he notes, would offer level playing field to Indian crypto exchanges against their foreign counterparts.
Crypto trading volumes experienced a massive downturn almost immediately after the Indian Union Budget 2022 was released. In the nine months following the announcement, more than $3.8 billion in trading volume was transferred from local to international exchanges.
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Ashish Singhal, co–founder and CEO of CoinSwitch, reiterated the same belief and said the "taxation policy is making the markets illiquid, and investor sentiment is running low. Such circumstances push consumers' money offshore into the gray markets, exposing them to regulatory issues."
Several individuals closely involved in the development of crypto regulations have publicly expressed hope for a tax cut but privately acknowledged that it is unlikely.
Kashif Raza, a prominent crypto industry expert, firmly believes that crypto should not be banned — "a mistake that India made in 2018," he said.
Menon stressed that as an industry, it is imperative for backers to have a clear and comprehensive roadmap on crypto regulations. "Both Prime Minister Modi and Finance Minister Sitaraman have voiced their support for a global coordination on crypto regulation, and India, as the president of G20, has a unique opportunity to set the agenda for the rest of the world to follow.”
Singhal highlighted that India should incentivise users to stay within national jurisdiction by reducing the burden of taxes. "If the TDS aims to establish a trail of crypto transactions, it can be achieved by a lower TDS rate of 0.1%. Similar to listed securities, existing provisions of capital assets should be made applicable for VDAs. To make India a competitive country in the growing crypto industry, tax authorities should allow carrying forward and setting off losses incurred from the sale of VDAs, similar to how it is done for capital gains," he added.
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