India’s current tax policy on cryptocurrency transactions, known as the tax-deducted-at-source (TDS), is expected to remain unchanged when Finance Minister Nirmala Sitharaman announces the 2024-2025 budget. This policy imposes a 1% tax on all crypto transactions at the source, which has been a contentious issue for the cryptocurrency industry. The Bharat Web3 Association (BWA) has been advocating for a reduction in this rate to 0.01%, arguing that the high tax rate drives capital away to international exchanges and discourages onshore transactions. They believe that a lower rate would help retain more transactions within India, thus increasing government revenue and fostering growth in the digital asset sector.
The upcoming budget is the first since Prime Minister Narendra Modi’s re-election for a third consecutive term. This time, however, Modi’s Bharatiya Janata Party (BJP) did not secure a majority, leading to the formation of a coalition government. This new political landscape adds complexity to budget decisions, with coalition partners demanding significant funding, which could overshadow specific requests such as changes to the crypto tax policy.
Moreover, the recent $230 million hack of the WazirX crypto exchange has further complicated the situation. This high-profile security breach could shift focus away from tax reforms and create additional pressure on the government to prioritize regulatory measures over tax relief.
Industry experts and crypto traders have expressed frustration over the TDS policy, highlighting its role in driving retail investors to offshore exchanges and decentralized platforms. They argue that a reduction in the TDS rate is essential not only for encouraging domestic transactions but also for fostering a healthier and more competitive crypto ecosystem in India.
Despite these arguments and the potential benefits of a lower tax rate, the political and regulatory environment suggests that immediate changes to the TDS policy are unlikely. The government’s focus remains on ensuring robust oversight and regulatory measures in the digital asset space, which might come at the expense of addressing industry concerns about high tax rates.
