India’s Finance Minister, Nirmala Sitharaman, unveiled the Union Budget for 2024-25 in India on July 23. The budget maintained the existing tax rate for the cryptocurrency industry without directly addressing digital assets.
Budget Overview and Community Reaction To Current India Crypto Tax Regime
This silence on policy has generated uncertainty within the Indian crypto community regarding the future of digital assets.
The lack of clear direction in the budget has sparked varied reactions from stakeholders within the Indian cryptocurrency ecosystem.
The budget presentation, while outlining nine priorities for economic growth – including agriculture, employment, and innovation – did not specifically address cryptocurrencies.
Key announcements included the elimination of the angel tax for startup investors and the retraction of the 2% equalization levy.
Notable figures in the Indian crypto community, such as developer Vijay Saran, were quick to point out the budget’s silence on cryptocurrency, with Saran stating on X that there was “not even a single mention of Crypto.”
Union Budget 2024 Update:
There is not even a single mention of Crypto in the #unionbudget2024
The Indian government did not mention anything related to cryptocurrencies in the union budget 2024-25
which means Tax on Crypto transactions and TDS is unchanged: 30% TAX and 1% TDS… pic.twitter.com/raBT1xWA6M
— Vijay Saran (@imvijaysaran) July 23, 2024
Sathvik Vishwanath, CEO of local exchange Unocoin, interpreted the government’s decision to keep taxes unchanged as an indication that the Indian government is stifling global innovation and investor’s interest.
Day-900: Effective regulations, not just higher taxation, are what the Indian #crypto industry needs today. Clear guidelines and fair policies will support innovation, protect investors, and drive sustainable growth! #reducecryptotax #faircryptotax #IndiaWantsCrypto @FinMinIndia
— Dr. Sathvik Vishwanath (Unocoin) (@sathvikv) July 21, 2024
The current crypto tax regime in India, introduced in Sitharaman’s 2022 Budget speech, imposes a 30% flat tax on crypto profits and a 1% Tax Deducted at Source (TDS) on transactions. But, the crypto community in the country is advocating for the TDS to be reduced to 0.01%.
This tax structure is considered one of the strictest globally and has been blamed for the significant decline in trading volumes on local exchanges.
According to a report by the National Academy of Legal Studies and Research (NASLAR), since the implementation of these tax measures, trading volumes on Indian exchanges have plummeted by 97%, while active users have dropped by 81%.
The research also found that the national treasury is losing approximately 59 billion Indian rupees ($700 million) in tax revenue due to diminished activity on India’s leading exchanges.
RBI’s Stance on Cryptocurrencies and Regulatory Impact
The Indian government has continued to warn against the dangers of crypto trading in India as Finance Minister Nirmala Sitharaman has warned of the global crypto regulation gap.
She said there may be a loophole for illicit activities if one country implements crypto regulations and others do not.
Notably, the cautious approach of the Reserve Bank of India (RBI) to cryptocurrencies has influenced government policy.
This cautious stance was exemplified by the RBI’s 2018 directive prohibiting banks from facilitating crypto transactions, a move later overturned by the Supreme Court in 2020.
The implementation of stringent tax measures has also affected the growth of crypto adoption in India.
India’s Crypto Journey:
2018: RBI bans crypto dealings; Supreme Court overturns in 2020.
2021: Govt proposes crypto ban; bill not introduced yet.
2022: India imposes a 30% tax on crypto transactions.
2024: Govt panel reviewing SEBI & RBI submissions. Report expected by June,… pic.twitter.com/x06uEWwLgM
— IshitaPandey.eth (@IshitaaPandey) May 16, 2024
A study by the Esya Centre, a Delhi-based technology firm, revealed the unintended effects of these regulations.
Their findings indicate a capital flight, with Indian investors moving approximately $3.852 billion (INR 32,000 crore) in digital assets to overseas exchanges since the tax implementation.
The Esya Centre’s analysis suggests that the stringent measures may be counterproductive, potentially reducing tax revenues and complicating transaction traceability.
The analysis calls for policy recalibration and suggests the TDS be aligned with the existing 0.1% tax on securities transactions.
Despite these industry recommendations, The RBI has consistently warned users about the speculative nature of crypto assets as it sees private digital currencies as a potential macroeconomic risk.
However, the Securities and Exchange Board of India (SEBI) is of the opposite opinion about cryptocurrency in the country. On May 16, the SEBI proposed a collaborative effort to oversee crypto trading in India, which was in contrast to the RBI seeking a stablecoin ban.
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