India Unlikely to See Crypto Tax Reduction in Tuesday’s Budget

While some policymakers are hoping for a reduction in the crypto tax, most experts do not expect any change.

The primary demand of the sector is to reduce the 1 percent tax rate deducted at source to 0.01 percent.

India is unlikely to change its controversial tax deduction at source (TDS) policy on cryptocurrency transactions after Finance Minister Nirmala Sitharaman announces the 2024-2025 budget on Tuesday, experts said.

The budget is the first since Prime Minister Narendra Modi was elected to a third consecutive term. The difference this time is that Modi’s Bharatiya Janata Party (BJP) unexpectedly failed to secure a majority and will have to form a coalition government. The budget is likely to take into account alliance partners who have requested more than $15 billion over the next few years.

TDS has been a hot topic for the crypto industry. Bharat Web3 Association (BWA) has been calling for the tax to be reduced from 1% to 0.01% since it was announced two years ago. The industry body has presented data from multiple sources, including a think-tank study, providing evidence in support of a reduction. Among other arguments, it says that reducing the rate will ensure more transactions remain local and generate higher revenue for the government.

“I do not foresee the 1% TDS being reduced in the near term, although it is necessary,” said Punit Agarwal, founder of crypto taxation platform KoinX. “The current rate is leading to capital flight to international exchanges and DEXs, which ultimately results in a loss to the government.”

Other demands include creating graduated taxes on profits instead of a flat 30% rate and allowing losses to offset gains. They also pressed for multi-agency regulation.

Despite the surprise election result that showed coalition partners had to be satisfied, and last week’s $230 million hack of cryptocurrency exchange WazirX, BWA officials said they were hopeful that at least one of their three demands would be granted.

The BWA is also seeking “regulatory direction.” India does not have comprehensive crypto regulations, but senior Finance Ministry officials said they plan to submit draft legislation to parliament.

What gives them hope is that the association has been invited to meet with the ministry as part of pre-budget consultations, such as in 2022 and 2023. However, R Venkat, a member of Bharat Web3 Association who attended the meeting, said that ministry officials “never gave us any opinion or comment”. The finance ministry declined to comment.

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“High TDS may have driven retail investors to offshore exchanges, but the government’s focus on stringent regulation suggests a rate cut is unlikely,” said Supreme Court crypto tax counsel Rajat Mittal. “The need for robust oversight in the digital asset space is seen as more critical than addressing industry concerns.”

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