- On July 23, India’s Finance Minister, Nirmala Sitharaman, presented the country’s Union Budget for 2024–25.
- Without specifically addressing digital assets, the budget preserved the industry’s current tax rate on cryptocurrencies.
An Overview of the Budget and Community Reactions to India’s Current Crypto Tax System
The Indian cryptocurrency community is apprehensive about the future of digital assets as a result of this policy’s silence.
Stakeholders in the Indian bitcoin industry have responded differently to the budget’s unclear course.
Although the budget presentation listed nine areas of economic growth, such as innovation, jobs, and agriculture, it made no mention of cryptocurrency.
The removal of the 2% equalization charge and the angel tax for startup investors were two of the major announcements.
Prominent members of the Indian cryptocurrency scene, including developer Vijay Saran, were quick to draw attention to the budget’s lack of discussion of cryptocurrencies. Saran claimed on X that not a single mention of cryptocurrency was made in the document.
The CEO of the regional exchange Unocoin, Sathvik Vishwanath, read the government’s decision to maintain tax rates at the same level as proof that the Indian government is inhibiting international innovation and investor interest.
The current crypto tax system in India levies a 1% Tax Deducted at Source (TDS) on transactions and a 30% flat tax on cryptocurrency profits. It was first presented in Sitharaman’s 2022 Budget speech. However, the nation’s cryptocurrency movement is pushing for a TDS cut to 0.01%.
The notable decrease in trading volumes on local exchanges has been attributed to this tax structure, which is regarded as one of the harshest in the world.
As per a research published by the National Academy of Legal Studies and Research (NASLAR), trading volumes on Indian exchanges have experienced a 97% decline, and the number of active users has decreased by 81% since these tax measures were implemented.
The study also discovered that decreased activity on India’s major exchanges is costing the national government about 700 million Indian rupees (59 billion INR) in lost tax revenue.
RBI’s Position on Virtual Currency and Its Regulatory Implications
In light of Finance Minister Nirmala Sitharaman’s warning about the global gap in crypto regulation, the Indian government has persisted in cautioning citizens about the risks associated with cryptocurrency trading.
She said that if one nation adopts crypto rules and another do not, there might be a gap for illegal activity.
Notably, the Reserve Bank of India’s (RBI) cautious attitude on cryptocurrencies has influenced government policy.
The RBI’s 2018 directive, which forbade banks from assisting cryptocurrency transactions, served as an example of this cautious approach. But in 2020, the Indian Supreme Court struck down this policy.
The increasing acceptance of cryptocurrencies in India has also been impacted by the imposition of strict tax laws.
The unforeseen consequences of these rules were discovered through a study conducted by the technology company Esya Centre, located in Delhi.
According to their findings, there has been a capital flight by Indian investors, who have moved digital assets worth about $3.852 billion (INR 32,000 crore) to foreign markets since the tax was implemented.
According to the Esya Center’s analysis, the strict regulations can have the opposite effect of what is intended, thereby decreasing tax collections and making transaction tracking more difficult.
The report recommends that policies be reevaluated and that the TDS be adjusted to reflect the current 0.1% securities transaction tax.
The RBI has continuously alerted users to the speculative character of cryptocurrency assets notwithstanding these industry suggestions because it views private digital currencies as a possible macroeconomic danger.
The Securities and Exchange Board of India (SEBI), however, has a different take on cryptocurrencies in the nation. On May 16, the RBI sought to outlaw stablecoins, while the SEBI suggested working together to regulate cryptocurrency trading in India.
Disclaimer : This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.
