Budget 2024: Will India see a reduction in TDS and other taxes that currently exist in crypto? (2024)

In the past few years, there has been a gradual positive shift in the right direction. The government has provided clarity on taxation, and crypto exchanges are now reported entities under the Prevention of Money Laundering Act (PMLA). However, the tax rate remains high, which is negatively impacting the growth of the ecosystem. This situation has led to a migration of trading volume to international exchanges, posing higher risks in terms of compliance and customer protection.

The taxation on crypto should also be at par with other businesses, the TDS should be reduced from 1% to 0.01 %, and set off of losses should be allowed.

The government and other stakeholders to promote awareness about the benefits and risks of crypto, and align stakeholders on comprehensive regulations around Web3 technology.

Industry Concerns
The Indian crypto industry has voiced its concerns regarding the current taxation framework. The 30% flat tax is considered significantly higher compared to traditional asset classes like stocks, which discourages long-term investment and incentivizes short-term trading. The 1% TDS further adds to the burden, creating an additional compliance layer and potentially hindering trading activity.

This has led to a decline in domestic trading volumes, with investors potentially shifting their activities to offshore exchanges that offer more favourable tax environments. This not only deprives the Indian government of potential tax revenue but also undermines the growth of the domestic Web3 ecosystem.

The Untapped Potential
Despite the current challenges, the Web3 sector in India holds immense promise for future growth. Industry estimates suggest that Web3 could contribute a staggering USD 1.1 trillion to India’s GDP by 2032. This exponential growth can be attributed to the numerous applications of blockchain technology, including decentralized finance (DeFi), non-fungible tokens (NFTs), and the metaverse. Creating a vibrant Web3 ecosystem which presents a unique opportunity for India to attract investments, create jobs, and become a global leader in this burgeoning technological revolution.

A Global Perspective
In comparison to India, several developed economies have adopted a more measured approach to crypto taxation. Countries like Singapore and Portugal have implemented lower tax rates for cryptocurrencies, creating a more conducive environment for innovation and investment. This highlights the potential competitive advantage India could gain by introducing a more rationalized tax regime.

The Government's Viewpoint
It's crucial to acknowledge the government's concerns regarding cryptocurrencies. The volatile nature of the market and the potential for misuse in money laundering and tax evasion are legitimate issues that necessitate regulatory measures.

A Call for Reform
There exists a clear need for a balanced approach. A well-designed tax framework can ensure that the government receives its fair share of revenue while simultaneously encouraging responsible innovation within the Web3 sector. Open dialogue and collaboration between the industry and the government are essential to achieve this balance.

Tax Optimization Strategies
It's important to know that some investors explore alternative strategies within the current tax structure. These may include utilizing Crypto-INR Futures and Options (F&Os) offered by certain platforms. However, it’s crucial to understand that such strategies are complex and may not be suitable for everyone. Consulting with a qualified tax professional before implementing any such strategy is essential.

With the upcoming budget approaching, the Indian crypto industry is anxiously awaiting potential changes in the regulatory system. A shift towards more favorable tax regulations for the Web3 sector could unlock its immense potential, propelling India to the forefront of the global digital revolution. By embracing innovation while addressing regulatory concerns, India can create a win-win situation for both the government and the burgeoning Web3 ecosystem.

(The author is the Cofounder & CEO, Pi42. Views are own)