In light of the upcoming budget announcement for FY2024-2025 in India, a policy paper has been released advocating for a revision of the country’s crypto tax laws. The report, compiled by the Centre for Tax Laws, NALSAR University of Law, and members of the crypto community, highlighted the potential benefits of revising the tax laws. Currently, India imposes a 30 percent tax on all crypto gains, along with a one percent TDS on every crypto transaction. This has led to concerns about the high tax burden and the impact on crypto activities in the country.
The policy paper argues that revising the crypto tax laws could lead to significant benefits for the Indian economy. It estimates that India could generate Rs. 5,144 crores through capital gains by 2027 if the tax laws are revised. Comparatively, the current tax rate on crypto profits in India is the highest among economies like Ukraine, Canada, and the US. The report also points out that no other country with significant exposure to virtual assets imposes a one percent TDS on transactions, highlighting the unique burden faced by investors in India.
The high tax rates and TDS on crypto transactions have had a considerable impact on the crypto sector in India. The report highlights that the number of active users in India’s crypto space dropped by 81 percent in 2023 alone. This decline in users has forced crypto exchanges to take cost-cutting measures to stay afloat. Many users have also turned to foreign exchanges to circumvent the existing tax laws and reduce their tax liabilities.
Despite the evident challenges posed by the current tax laws, the Indian government has not yet indicated whether it will revise the regulations. Finance Minister Nirmala Sitharaman did not address the crypto sector in the interim budget announcement earlier this year, raising concerns among industry stakeholders. The crypto community in India continues to demand a reduction in taxes and a more favorable regulatory environment to support the growth of the sector.
The case for revising crypto tax laws in India is clear. The high tax rates and TDS on transactions are hindering the growth of the sector and driving users to foreign exchanges. By revising the tax laws, India could unlock significant economic benefits, attract more investors, and promote innovation in the crypto space. It is crucial for the government to consider these recommendations and create a more conducive environment for the crypto industry to thrive.
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