The crypto community in India has high hopes from the Union Budget 2024-25 for several key changes that could significantly impact the industry. These proposals aim to create a more favorable environment for cryptocurrency trading and blockchain technology adoption. Here are the main points on the community’s wishlist:
1. Reduction of TDS on Transfer of VDAs
One of the primary requests is to reduce the rate of Tax Deducted at Source (TDS) on the transfer of Virtual Digital Assets (VDAs) under section 194S to 0.01%. Currently, the higher rate of TDS at 1% acts as a deterrent for investors, leading to reduced market liquidity and participation. A lower TDS rate would encourage more transactions and foster a healthier trading ecosystem. Additionally, it is suggested to revisit the threshold limit for tax deduction under Section 194S, increasing it from Rs 50,000 to Rs 5,00,000.
2. Setoff and Carry Forward of Losses
The crypto community is advocating for the ability to set off and carry forward losses, similar to other sectors. Presently, losses incurred from trading VDAs cannot be carried forward to offset future gains from VDAs or any other income sources, which 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.
3. Par Treatment of Income from VDAs
Treating income from the transfer of VDAs at par with existing income sources is another significant demand. This means recognizing and taxing crypto income similarly to traditional forms of income, such as that from stocks or mutual funds. This change would not only simplify tax compliance for crypto investors but also legitimize cryptocurrency as a mainstream asset class. An amendment to Section 115BBH to reduce the tax rate from 30 percent to a rate comparable with assets in other industries would be a welcome change.
4. Call for a Regulatory Body
In addition to the above-mentioned financial adjustments, there is a growing call for establishing a dedicated regulatory body to govern crypto transactions. Such an institution would ensure transparency, protect investors, and provide clear guidelines for compliance, thus fostering trust and stability in the market.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 move to non-compliant foreign exchanges to trade. This puts them at risk of losing their investment and breaking the law, resulting in lesser tax revenues for the exchequer.
The RBI’s recent June 2024 Financial Stability Report (FSR) highlighted Decentralised Finance (DeFi) and its implications for financial stability. This mirrors global regulatory efforts to ensure a secure and stable environment for digital assets. As the Union Budget approaches, integrating these insights by establishing a robust regulatory framework under SEBI or RBI can help mitigate stability risks in the DeFi and digital asset space, ensuring that India remains competitive in this evolving global market.
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 these changes, particularly in 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.
(The author is VP, WazirX)
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of the Economic Times.)