Budget 2023: Crypto industry calls for rationalised tax policy; but will the demand go unheard?

Budget 2023: Crypto industry calls for rationalised tax policy; but will the demand go unheard?

Crypto trading volumes at the homegrown exchanges took a big hit after rolling out a heavy taxation policy, which jolted millions of crypto investors in India.

Budget 2023: Crypto industry calls for rationalised tax policy; but will the demand go unheard? Budget 2023: Crypto industry calls for rationalised tax policy; but will the demand go unheard?

Union Budget 2023 is just a few days away as the Finance Minister Nirmala Sitharaman will table the country's plans for income and expenditure on February 1. However, Indian cryptocurrency industry's demand for rationalised taxation on virtual digital assets (VDAs) may go unheard given the government's tough stance on crypto, but the industry hopes her to deliver some clarity on a few fronts.

In her last Budget speech, the Finance Minister had announced to introduce crypto taxation under the newly introduced Section 115BBH of the Income Tax Act. The government levies a flat 30 per cent tax on the profits arising from the crypto trading, other than an applicable surcharge and cess of 4 per cent.

The Finance Minister also announced that loss from a crypto asset can not be offset against the profits made on other crypto assets. The government also announced to levy 1 per cent tax deductible at source (TDS) on crypto from July 1, 2022. In December 2022, the government revealed that it collected a total of Rs 60.46 crore from VDAs transaction since July 1.

Many investors have chosen to trade their assets in international exchanges that do not have a system to deduct 1 per cent TDS thus preserving their principal. The government didn’t anticipate the high share of such transactions. This has created an uneven atmosphere for local compliant exchanges that cooperate with regulatory bodies, said Vikram Subburaj, CEO, Giottus Crypto Platform.

"We believe that the government will look at this year’s Budget as an opportunity to maximize crypto taxation revenue by incentivising trade in Indian exchanges. This can be done by reducing the TDS percentage to 0.1 per cent which will continue to maintain its tracking efficacy," he said. "Overall taxation can be further rationalised and augmented with the ability to offset losses in one asset over gains in another."

Punit Agarwal, Founder at KoinX expects that the government may bring in more clarity and offer some relaxation under a systematic regulatory framework. "We indeed hope for the best in lieu of everyone’s interest as crypto is advancing for regulation to support transparent investigations," he said. Agarwal is expecting to get more clarity on how different virtual assets are taxed, including NFTs or mining-related activities. He hopes to see a lower tax deducted at source (TDS) on crypto purchases and trades.

As per CoinDCX and CoinSwitch, two of India's most popular crypto exchanges, they have amongst them a userbase of 15 million and 20 million, respectively.  Such heavy taxation, therefore, was a big jolt for the investors and ended up sucking out a major portion of trading volumes from these homegrown crypto exchanges.

As per the government, however, the reason behind levying aggressive taxes on the crypto assets was made in order to discourage investors from putting their money in riskier asset classes amid the lack of education and other risks of such investments to the economy at large. Besides, the government intends to keep a complete record of crypto transactions.

As per experts, such as said Purushottam Anand, founder at Crypto Legal, excessive taxation has significantly subdued customer interest and has also triggered mass exodus of Indian crypto projects to other jurisdictions; but sadly, the Budget is unlikely to provide any relief in this regard.

"The government introduced crypto taxation last year as a policy tool to maintain status quo and to discourage retail investors from entering crypto space till a regulatory framework is introduced," Anand said.

"There is still no clarity on this front as the crypto bill is still pending. Any modification the crypto taxation provisions is unlikely in this Budget," he added.

The industry will, therefore, be looking for cues over the legal stand of the government on crypto assets and regulation of the crypto exchanges and ecosystem in the country. But until then, the asset class remains a grey area still.

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Published on: Jan 18, 2023, 1:49 PM IST
Posted by: Tarab Zaidi, Jan 18, 2023, 1:39 PM IST