India to Present Union Budget On July 23, Will Crypto Investors Get Tax Relief?

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As a researcher with a background in economics and experience in studying the cryptocurrency industry, I believe that the upcoming Union Budget in India presents a significant opportunity for the crypto sector to gain some much-needed clarity and potential tax reliefs. The current tax structure, which imposes a flat 30% tax on crypto gains and a 1% TDS on every transfer, has been detrimental to the industry’s growth and competitiveness.

The newly elected Indian administration, led by Prime Minister Narendra Modi, will unveil the Union Budget towards the end of July on the 23rd. The Indian cryptocurrency sector eagerly anticipates this budget, holding out hope for potential tax exemptions. Additionally, they are seeking definitive instructions from the government regarding crypto regulations.

India Budget: Will Govt. Reduce Crypto Tax Burden?

In preparation for the upcoming union budget, the cryptocurrency sector harbors several expectations. Among these are the possibility of decreased crypto taxes, the provision to set off crypto losses against gains within the same fiscal year, and equal treatment of crypto capital gains alongside those from other asset classes. Lastly, the industry aspires for India to establish a favorable business climate for crypto companies, thereby keeping pace with international economic trends.

In the year 2022, the Indian administration introduced a substantial 30% tax rate on cryptocurrency profits without regard to an individual’s income tax bracket. Moreover, a 1% tax deducted at source (TDS) is levied on each transfer of crypto assets.

As a researcher studying the intersection of technology and finance, I would like to emphasize the potential of India’s Web3 opportunity based on the insights shared by Ashish Singhal, co-founder of CoinSwitch. Singhal underscores the need for the Indian government to reevaluate its current cryptocurrency taxation policy in the upcoming budget. By doing so, we can foster a more conducive environment for innovation and growth within this burgeoning sector.

“The 30% fixed tax rate for income derived from Virtual Digital Asset (VDA) transfers should be reassessed to align it with other tech-driven industries. Moreover, reconsidering the current thresholds of Rs 10,000 and Rs 50,000 is worth exploring. A significant number of crypto sellers fall into the lower income category. Raising these thresholds will lessen the tax department’s workload in handling refund requests.”

One benefit of putting money into conventional investments such as stocks, gold, and bonds is the flexibility to subtract losses in one investment from profits in another during the same year, and saving unadjusted losses for later use. However, when it comes to cryptocurrencies, losses from one asset cannot be counterbalanced against gains from another, nor can they be carried over. The industry is pushing for a significant modification to this regulation.

During the pre-budget consultations, I, as an analyst, advocated on behalf of the Bharat Web3 Association for a reduction in the TDS rate from 1% to 0.01%.

“Shivam Thakral, CEO of BuyUcoin, a cryptocurrency exchange based in India, expressed concern over the past two years’ downturn in the VDA (Value Added Distributor) market in India. He attributed this decline primarily to the introduction of a 1 percent Tax Deducted at Source (TDS) and capital gains tax on VDA transactions. Thakral urged the upcoming budget to consider alleviating these taxes, allowing for fair competition and growth opportunities within the industry.”

Learning Lessons from US Regulations

In recent years, the cryptocurrency community has fiercely criticized the US Securities and Exchange Commission (SEC) for its regulation-through-enforcement approach. This strategy has driven some pioneering token creators and crypto developers to establish their businesses beyond US borders due to the stringent regulatory requirements imposed by the SEC.

A major complaint about cryptocurrency regulations in the US is the absence of definitive, unified rules. This ambiguity puts both new businesses and well-established companies in a difficult spot, leaving them uncertain about regulatory expectations and fearful of potential unexpected legal consequences.

As India develops its cryptocurrency regulatory structure, it would be beneficial for the country to learn from the experiences of the US in order to avoid potential issues and create a more welcoming atmosphere for digital assets. India’s goal should be to strike a harmonious balance between fostering innovation and protecting investors through regulations that are neither excessively restrictive nor overly permissive, similar to the Goldilocks zone.

Highlighting the real-world applications of blockchain technology beyond mere investment can lead to the development of effective solutions in fields like finance, logistics, and government services.

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2024-07-06 18:27