Key Developments and Growing Activity
The first half of this year has been pivotal for the crypto industry. Noteworthy milestones include Bitcoin reaching a peak of over $73,000 in March, the Bitcoin Halving event, and the US SEC granting approval for spot Bitcoin ETFs. These events have spurred increased trading activity in the Indian crypto market, prompting exchanges to advocate for a supportive regulatory and tax environment in the upcoming Budget.
Current Taxation Challenges
Ashish Singhal, co-founder of CoinSwitch, highlighted the challenges posed by the current taxation framework for virtual digital assets (VDAs), which was introduced in February 2022:
“The current taxation framework for virtual digital assets (VDAs), introduced over two years ago in February 2022, has led to unintended consequences even for the government and the exchequer, mainly via a shift in VDA transactions to offshore platforms, impacting tracking and tracing of such transactions. We believe with a new government in place, and to capitalize on India’s Web3 opportunity, a relook at the tax treatment on virtual digital assets in the July 2024 Union Budget will be very timely.”
Proposals for Tax Reforms
Crypto exchanges are pushing for several tax reforms to foster a healthier trading environment. One key proposal is to reduce the TDS (Tax Deducted at Source) rate on the transfer of virtual digital assets from 1% to 0.01%. Singhal elaborated on additional recommendations:
“Allow the offset of losses similar to other sectors to encourage responsible trading practices and reduce the risk of tax evasion. Re-examine the flat rate of 30% applicable to income from the transfer of virtual digital assets to ensure parity with other tech-enabled sectors.”
Emphasis on Regulatory Clarity
Raj Karkara, chief operating officer of ZebPay, emphasized the importance of regulatory clarity:
“Regulatory clarity is one of the most crucial steps towards creating a secure and transparent investment ecosystem for all stakeholders.”
Looking Ahead
With the upcoming Union Budget in July 2024, the crypto industry is hopeful for a reassessment of the tax treatment on virtual digital assets. By addressing these concerns, the government can help ensure a more robust and transparent trading environment, enabling India to capitalize on the burgeoning Web3 opportunity.